Analysts are particularly interested in the EUR/USD currency pair. They judge its path against a backdrop of choppy economic data and uncertainties over interest rates. Pablo Piovano, Senior Analyst at FXstreet, underlines the importance of the recent events. He explains the Minutes that were released on December 30, which reveal a highly fractious Federal Open Market Committee (FOMC) on the next steps for raising interest rates. With the market looking ahead to more economic data, starting with US inflation data next week, the outlook for EUR/USD is unstable.
The Federal Reserve’s dual mandate focuses on achieving price stability and maximum employment, which will significantly influence the currency pair’s direction. The new Consumer Price Index (CPI) data to be released for December is expected to show a headline increase of 2.7% YoY. This figure will be unchanged from last month’s release.
Core CPI is expected to tick up a bit more, from 2.6% to 2.7%. Market participants are eagerly awaiting Wednesday’s core CPI numbers. History shows that when inflation goes over 2%, interest rates tend to increase.
Market Sentiments and Key Levels
The EUR/USD pair is floating around important technical levels at the moment. Analysts are calling for a decisive break in either direction, which would determine BTC’s immediate fortunes. Piovano adds that a fall in the EUR/USD under the short-term 55-day moving average of 1.1639 would spark a big retreat. Further gains would see the 200-day simple moving average at 1.1561 become an important line in the sand to monitor.
“If EUR/USD decisively slips below the short-term 55-day moving average at 1.1639, it would open the door to a deeper pullback, with the 200-day SMA at 1.1561 coming into focus sooner rather than later.” – Pablo Piovano
As the analyst notes though, a clean break above December’s high of 1.1807 would quickly shift the mood in the market. On balance, this would be a more bullish change. Such a turn of events would drive the EUR/USD pair closer to its 2025 peak of 1.1918 hit on September 17. To boot, the psychologically important barrier of 1.2000 is just in reach, adding to the drama.
“On the flip side, a clean break above the December peak at 1.1807 would shift the tone back to the upside. That would put the 2025 high at 1.1918 on the radar, with the psychologically important 1.2000 level lurking just beyond.” – Pablo Piovano
Influences on EUR/USD Movement
The EUR/USD moves are influenced by more than just technical levels. They are not immune and are instead heavily shaped by macroeconomic factors such as US inflation data and labor statistics. The US Department of Labor Statistics publishes monthly CPI data. More broadly, this data serves as one of the leading indicators of inflationary pressures building throughout the economy.
Specifically, in November the EUR/USD currency pair reached a low of 1.1468 on November 5th. Previously, in August, it had already reached a low point of 1.1391 on August 1. The various historical lows represent key support levels that traders would likely watch very closely if the currency pair continued to make downward moves.
The US rises in inflation, and what this means for interest rates is especially timely given this backdrop. Should core CPI continue to rise, market expectations for increased interest rates from the Federal Reserve could intensify, further influencing the currency pair’s valuation.
Future Outlook
Analysts looking ahead to potential inflation data being released next week. Underwriters are especially impressed by these figures, noting how they’ll impact the overall market condition and EUR/USD currency pair. The divide among the FOMC members indicates that there is still a lack of clarity surrounding the future aggressiveness of interest rate hikes. This lack of clarity adds an even bigger wild card to forex trading strategies.
The continued analysis by independent experts like Piovano is going to be key in helping traders navigate changes in the overall market sentiment. The unpredictability of Biden’s crypto vision means traders need to be vigilant while they traverse this evolving terrain. Thresholds are set, and countervailing economic indicators await just over the hill.