The exchange rate of the euro against the dollar, EUR/USD, entered the new year 2023 in full swing, during a strong downward momentum. It reached the support level of 1.0519, where the price of the US dollar surprised the markets and rose strongly against the rest of the other major currencies. The inflation differences indicate that the euro / dollar will be priced /USD is fairly anywhere between 1.0449 and 1.0745 although economic data from Europe and the US could test the market's appetite for the single currency during this week's trading.
In general, the single European currency retreated from its highest level in eight months at the beginning of the new week's trading. It was below the level of 1.06, after a vacation period in which the dollar seemed to have no direction and low energy prices supported the euro against many other currencies. However, using the latest differentials for inflation and interest rates for deflation from the beginning January 2022 level around 1.1371 indicates that EUR/USD is somewhat priced between 1.0449 and 1.0745, although these numbers may rise when inflation data is released. European for the month of December on Friday.
Commenting on performance and influence factors. “Using German CPI (January 3), Eurozone PPI (January 5), Eurozone CPI (January 6), Sentix (January 9), and German ZEW (17),” says Jordan Rochester, analyst at Nomura. January), PPI (January 20) and PMI (January 24) there is a lot of data to digest,” he added. Government fiscals, lower gas prices and/or reopening China hopes lead to a sustained rebound in European growth data.”
In general, the price of the euro against the dollar, EUR/USD, has risen sharply in recent months, but it is still declining by more than five percent for 2022 in general, after the conflict in Ukraine severely affected European assets, while the hardline US Federal Reserve boosted the market's appetite for the dollar.
“They will also mitigate fiscal risks as governments need to pay lower subsidies to keep energy costs for consumers at politically acceptable levels,” says Holger Schmieding, chief economist at Berenberg. And last week, we raised our calls for the change in real GDP in 2023 from -0.7% to -0.4% dramatically. It affected Germany and from -0.3% to -0.2% for the Eurozone as a whole. If gas prices continue to be below €100 per MWh, this will shift the balance of risks to our European growth outlook to the upside.”
However, the action-packed economic calendar is most important for EUR/USD this week, with the implications for interest rate differentials arising from the release of European inflation figures on Friday and US employment data for December being the most important. The consensus is that inflation in Europe fell from 10.1% to 10% in December, marking a second consecutive drop from a peak of 10.7% in October, although if Barclays' predictions of a deeper decline prove correct, this could have positive implications for the euro against the dollar. However, much is also likely to depend on the release of the Fed's minutes on Wednesday and what the December non-farm payrolls report indicates about the strength of the US labor market later on Friday, and the inflation implications of the latest wage growth numbers.
EUR/USD Forecast:
- Any gains for the EUR/USD currency pair will remain a target for selling.
- This is what happened yesterday, as it collapsed below the support at 1.0550.
- The bears’ control of the trend increases.
- If the momentum of the US dollar continues, the currency pair may be subjected to a further collapse downwards to the support levels 1.0480 and 1.0390.
At the same time, it is sufficient to push the technical indicators towards oversold levels. On the upside, as I mentioned before, the bulls will need to breach the resistance 1.0730 to confirm control of the trend again. The currency pair will remain under pressure until the reaction to the announcement of the Federal Reserve meeting minutes and US jobs numbers.
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