Given the pronouncement-fueled swings, the EUR/USD currency pair on Tuesday morning sits at 1.1665. It holds flat as the market looks ahead hungrily to important developments this week. This newfound tenor of stability comes on the heels of a broader recent bearish trend that’s dominated ever since reaching highs the week of late December. In fact, as shown below, earlier today the enduring European currency rebounded sharply from intraday lows of 1.1653. This area still looks to provide a solid cushion as it heads into the upper end of the 1.1600s.
EUR/USD saw a short-lived rebound. It was not able to exceed the resistance value around 1.1700, indicating it’s struggling to maintain bullish momentum. Market analysts have commented that the current technicals on the 4-hour chart paint an unclear scene. This shakiness comes as traders look ahead to key U.S. inflation figures that could shape the course of future monetary policy.
Recent Performance and Technical Levels
Tuesday was a pretty boring day in the EUR/USD pair, with the currency trading in a tight range all day. The duo plunged to an intraday low of 1.1653. It swiftly bounced back to 1.1665 – a key line in the sand for traders monitoring this week’s volatility. The strength of the bounce at these lows indicates that there may be more fundamental support underneath. The bearish trend overall is very much intact.
Key resistance levels remains a problem for the currency pair. Importantly, clear trendline resistance is currently located at 1.1694, right underneath Monday’s high. A break above this resistance may pave the way toward retest of a target above January 6’s high at about 1.1740. Until then, the market sentiment is risk averse with traders anticipating possible scenarios depending on upcoming economic reports.
As a result, the Euro has notably appreciated against the Japanese Yen, indicating its strength during rapidly-changing risk-on, risk-off market conditions. Yet, the outcome against the dollar has been much more conclusive, mirroring a deeper trend of caution that has gripped forex markets.
Impact of US Monetary Policy
The U.S. Federal Reserve’s monetary policy decisions are at the forefront of traders’ minds as they await the Consumer Price Index (CPI) data release.… headline inflation is expected to rise consistently to an annualized rate of 2.7%. At the same time, core inflation – which is more relevant for monetary policy – is projected to climb from 2.6% in November to 2.7% in December.
According to market expectations, there’s a very strong 95% chance that the Federal Reserve will raise interest rates. We expect this decision to be made at their meeting in January. This indicates a jittery mood among investors who are watching how the inflation numbers affect possible future changes in monetary policy. Hopes for a pre-Christmas rate cut in March have all but disappeared from the markets. The likelihood has tanked from 41% to just 24% in only a week’s time, per CME Group’s Fedwatch tool.
The ongoing debate surrounding the U.S. government’s actions raises questions about the Federal Reserve’s ability to solely focus on its dual mandate of maximum employment and stable prices. Market participants have every inflation report under a microscope. Even the faintest signal from these reports can cause them to recalibrate their interest rate policies.
Market Sentiment and Future Outlook
Market activity Leading into U.S. CPI announcement Sentiment among investors is still incomplete. Helpfully, the technical indicators on the 4-hour chart are clear as day for traders. This lack of clarity muddles making clear predictions on what the next move is for the EUR/USD currency pair.
The case of EUR/USD over the past month is a perfect example of how external factors can twist and turn currency movements in fascinating, unpredictable ways. Traders need to remain cautious as the current bearish trend persists. Most importantly, given that major resistance levels have yet to be materially broken, it’s important to be prepared to respond to upcoming economic data.