Recently, the US dollar rose in response to the release of US inflation data for November, which showed an increase of 0.1% on a monthly basis in the main US consumer price index (CPI). Clearly, an increase from October's reading of 0% and higher than the flat reading of 0% expected by the market. As a result, attempts by the EUR/USD pair to rebound higher stopped at 1.0828, stabilizing lower around 1.0787 at the time of writing the analysis in anticipation of a new important event.
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According to the official figures, the US consumer price index (CPI) core inflation also reached 0.3% monthly in November, up from 0.2% in October. However, this is in line with investor expectations. Nearby, this reading comes on the day that the Federal Open Market Committee (FOMC) meets to discuss the details of the next policy decision, scheduled to be announced today.
Commenting on the US data, David Cole, chief economist at Julius Baer, said: “The US inflation report suggests that the decline in inflation is not a smooth one. Prices have risen slightly overall despite lower energy prices.”
Accordingly, the US Federal Reserve may point to a slight rise in monthly inflation to respond to the recent shift in market expectations towards more and faster interest rate cuts in 2024, a situation that pushed the US dollar lower during November. For his part, Christoph Balz, chief economist at Commerzbank, says: “For the Fed’s taste, market expectations of interest rate cuts in the near future have likely gone too far.” Therefore, Fed Chairman Powell is expected to try to ease speculation about interest rate cuts in the press conference after the FOMC meeting today.
Therefore, any success in pushing back on these bets by the Fed would be consistent with a continuation of the current recovery in the US dollar. For his part, Ali Jafari, an economist at CIBC Capital Markets, says: “The CPI for November showed a slight acceleration in price pressures.” “This reinforces our call that the US Federal Reserve will not ease policy until late 2024.”
Generally, If the Federal Reserve postpones the timing of US interest rate cuts to 2024, the EUR/USD could end the week on a negative note. However, there are reasons to suspect that dollar strength based on inflation rhetoric and the Fed may ultimately be limited. Specially, as the details of Tuesday's report in no way point to rising inflationary pressures.
In the same regard, Claire Vann, an economist at Royal Bank of Canada, said that the US Fed will retain the option to raise interest rates as economic growth remains resilient and Chairman Powell has actively opposed rhetoric about rate cuts in 2024. Added, “So we still expect the Fed to remain The Fed is in a waiting mode, until it turns to gradual cuts in the second quarter of 2024.”
EUR/USD technical Analysis Today:
The attempt of the EUR/USD currency pair to recover yesterday proved unsuccessful as it returned to stabilize below the psychological support of 1.0800. obviously, the bearish control remains dominant. As mentioned before, the currency pair may continue its current path until the reaction to the announcement of the US inflation figures yesterday and the Federal Reserve's announcement today. Meanwhile, strong signals from the central bank for further tightening imply more bearish control over the trend. Therefore, the upcoming key support levels could be 1.0700, 1.0650, and 1.0580, respectively. According to the performance on the daily chart below, these levels are sufficient to drive technical indicators towards strong oversold levels.
On the other hand, during the same period, the return of the EUR/USD price to the psychological resistance of 1.1000 becomes crucial to change the direction to an upward one.
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