- In a very limited trading session due to the holidays, the price of the EUR/USD currency pair moved in a range between the support level of 1.0658 and the resistance level of 1.0700.
- It settled around the level of 1.0660 at the time of writing the analysis, waiting for any news.
- The euro-dollar currency pair will remain in waiting mode until the reaction from important and influential events, led by the announcement of the content of the minutes of the last meeting of the US Federal Reserve, inflation numbers in the eurozone, and then US job numbers.
ECB Governing Council member Joachim Nagel said additional measures are needed to curb rising expectations for future prices and return inflation to the 2% target. “Our monthly surveys of businesses and households show a significant increase in long-term inflation expectations,” Nagel said in an interview with Zeitschrift für das gesamte Kreditwesen published on the Bundesbank website on Monday. “I firmly believe that we need to take more monetary policy measures to stop and reverse This trend.”
For its part, the European Central Bank raised interest rates by 250 basis points last year and officials said more hikes are to come. For her part, European Central Governor Christine Lagarde said last week that allowing inflation to take hold "would be worse". Nagel echoed those sentiments, saying it would be a mistake to act so reluctantly now for fear that higher borrowing costs would hurt economic growth. "Then we will have to tighten policy much more sharply in the future, and therefore put more pressure on the economy," Nagel added.
Nagel also said: “I am optimistic that Germany will be able to avoid a severe recession and we will emerge calmly with a moderate downturn. I am confident that we will be able to tame the high inflation rate in the medium term,” he added. “There is a clear risk of stronger second-round effects because the higher wage deals that are reached could prolong the period of prevailing high inflation rates.”
European bonds rose sharply on the first day of trading in 2023, in a sign that investors are taking advantage of the recent sell-off to reap some of the highest returns in more than a decade before inflation begins to subside. Accordingly, the price of the 10-year bond fell by 14 basis points to 2.43%, retreating from the highest level since 2011 that it touched last week. Yields on Italian equivalent securities fell 16 basis points. The moves were likely boosted by lower-than-usual trading volumes, with major markets still closed for holidays.
The blows to fixed income markets from the aggressive pace of rate hikes from the European Central Bank may have gone too far for some, amid initial signs that inflation is slowing. Friday's data will show that annual gains in consumer prices eased to 9.5% in December, from 10.1% in the previous month, according to the median of 28 forecasts in a Bloomberg survey.
EUR/USD forecast today:
The bulls are still trying to penetrate the EUR/USD resistance at 1.0730 to be able to gain more bullish control. It must be taken into consideration that the currency pair will interact strongly with the future policy of both the European Central Bank and the US Federal Reserve and the energy future in the eurozone, especially with the continuation of the Russian-Ukrainian war. I still prefer selling the EUR/USD from every higher level. On the other hand, according to the performance on the daily chart below, the EUR/USD breach of the support level at 1.0570 will be important to inform the current upward hopes.
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