- In spite of the strongest daily rise since early December, EUR/USD is hovering around a two-month high.
- The US inflation rate was in line with December’s forecasts, so Fed hawks had less fuel to talk about.
- Despite virus concerns, ECB policymakers remain optimistic about inflation.
Since mid-November, the EUR/USD price has been balancing at the highest level in Europe on early Thursday morning.
The EUR/USD pair rose to its highest level in just five weeks yesterday. Conversely, the US dollar fell to multi-day lows as inflation data matched projections, raising market concerns that the Fed hawks will run out of ammunition by the time they meet 25-26 January.
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Despite this, the US consumer price index (CPI) rose to its highest level since 1982, coming in at 7.0% from 6.8% a year earlier. In addition, the monthly indicators rose to 0.5% against the expected 0.4% but fell below 0.8% previously.
Despite the release of inflation data, Fed policymakers maintained their hawkish sentiment, challenging the bulls recently in the EUR/USD pair. According to the Wall Street Journal (WSJ), James Bullard, President of the Federal Reserve Bank of St. Louis, was the first to predict, “There will likely be four rate hikes in 2022 and one on the table.”
The Fed’s Board of Governors and future FOMC Vice-Chair Laelle Brainard also stated, “Controlling inflation is the Fed’s most important job.” At the same time, Mary Daly, President and Chief Executive Officer of the San Francisco Federal Reserve Bank, said March signals a rate hike increase.
François Villerois de Gallo, the European Central Bank (ECB) policymaker, said in a statement: “We are very close to the peak of inflation.” It should be noted that industrial production in the euro area rose by 2.3% in November compared to the forecast of 0.5% and a previously revised 1.3%.
In light of recently increased pressure on Fed policymakers, bond yields are consolidating past losses, posing a challenge for stock futures and riskier assets. Nonetheless, several politicians from the European Central Bank (ECB) and the Federal Reserve will be speaking on Thursday, which will again provide an active day for traders in the EUR/USD pair. Aside from monetary signals, the December US Producer Price Index (PPI) and weekly jobless claims, as well as the European Economic Bulletin, will guide the pair’s short-term moves.
Furthermore, the latest inflation data adds to the drama between the ECB and the Fed, despite the Fed’s advantage over the bloc’s central bank. As a result, EUR/USD prices may decline due to the Fed’s balance sheet tips in favor of the hawks.
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EUR/USD price technical analysis: Bulls to edge further higher
The EUR/USD price breaks the key resistance at 1.1385 and marks fresh multi-month highs at 1.1450. The pair is now consolidating the gains and the volume has dried out. However, the potential for another bull run towards 1.1500 cannot be ruled out.
On the flip side, the pair may test 1.1400 ahead of 1.1330 if the market sees huge profit taking around the current levels. However, the volume and price correlation shows that the bulls are not out of steam yet.
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