The inflation figures in the eurozone did not come as a surprise to the markets.
The EUR/USD currency pair was affected, and it fell to the support level of 1.0765, before settling around the level of 1.0792 at the time of writing the analysis. Calming down concerns about the energy future in the eurozone, despite the continuation of the Russian-Ukrainian war, and emphasizing that the European Central Bank is determined to tighten in exchange for calming down the path of tightening the US central bank's policy are all combined factors that contributed to the recovery of the euro-dollar pair.
The scope for rate hikes increased sharply in February, core inflation in the eurozone accelerated in December, as expected, while headline inflation slowed to a four-month low on energy prices, final data from European statistics agency Eurostat revealed yesterday. Core inflation, which excludes energy, food, alcohol and tobacco, rose to 5.2 percent from 5.0 percent in November. The rate was in line with the initial estimate published on January 6.
Meanwhile, overall consumer price inflation slowed to 9.2% in December, as expected, from 10.1% in November. A year ago, inflation was 5.0 percent. On a monthly basis, the Harmonized Consumer Price Index fell 0.4 percent in December. Earlier this month, the European Central Bank's survey of consumer expectations showed that forecasts for consumer price inflation for next year slowed to 5.0 percent from 5.4 percent.
For its part, the European Central Bank raised interest rates by 250 basis points in 2022, the fastest pace of monetary tightening in the history of the central bank, to curb runaway inflation. After the December meeting, European Central Bank Governor Christine Lagarde said there would be more interest rate increases in the future, at a steady pace. Yesterday's data showed that within headline inflation, only energy prices showed a slowdown in growth in December. Energy prices are still up 25.5 percent, after increasing 34.9 percent in November.
EUR/USD forecast today:
- According to the performance on the daily chart, the bulls are trying to maintain the stability of the EUR/USD currency pair, above the 1.0800 resistance.
- It will continue the bullish trend, but this lacks strong momentum.
- The inflation numbers in the eurozone did not record any surprise, and the performance of the currency pair passed unnoticed.
The future of tightening signals, whether from the US Federal Reserve and the European Central Bank, will have a strong and direct impact on the performance of the currency pair. The closest resistance levels for the currency pair today are 1.0865, 1.0920, and 1.1000, respectively. I still prefer to sell the euro in dollars from every upside.
On the other hand, a break of the current general trend will occur if the currency pair moves towards the support levels 1.0711 and 1.0620, respectively. The euro will be affected by the statements of the European Central Governor Lagarde and the rest of the US economic data.
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