Formation of a bullish channel
- The price of the euro against the dollar, EUR/USD, entered the new week’s trading in a bullish momentum.
- It broke through the parity price with gains towards the 1.0035 level.
- The price of the euro dollar is stabilizing near its gains.
- There may be room for further recovery in the coming days, with nearly three-month highs around 1.02, if this week’s US inflation data encourages the recent correction in US dollar crosses to extend further.
Europe’s single currency outperformed most of its major peers on Monday as financial markets shrugged off the latest statements from Chinese public health officials, some of whom dismissed earlier market speculation suggesting a possible change in the approach to Beijing facing the coronavirus in the near future. Speculation over possible changes in China’s approach drove most currencies higher on Friday and appeared to weigh on the dollar, although the renminbi on Monday had no apparent impact on market sentiment and did not prevent the euro or risky assets from recovering.
That leaves much of the euro’s performance to be determined by the market’s response to Tuesday’s legislative election and the details of Thursday’s October US inflation report, which is the culmination of the lull in European data.
“Evidence that inflation remains uncomfortably high, combined with a hawkish Fed, should support the dollar rate and give an edge across the board,” said Valentin Marinov, FX analyst at Credit Agricole CIB. “The midterm elections in the United States today are expected to lead to a deadlock in Congress. It would be surprising if Democrats were able to maintain the House and Senate, which would increase the risks of increased public spending, increased Treasury yields and, in turn, a stronger dollar.
Thursday’s U.S. inflation numbers will affect U.S. interest rate outlook
The difference between whether the euro ends this week near three-month highs around 1.02 or falls back near last week’s lows below 0.98 could be. The latter would be very likely if Thursday’s data showed inflation picking up on an annual basis last month, as that type of outcome will force the market to think again about how much the Fed might feel compelled to raise. interest rates next year.
Economists expect US inflation to have eased slightly in October, but any sudden increases will hurt the euro after Federal Reserve Chairman Jerome Powell said last week that data previous ones already justified a sharp increase in interest rates for next year more than before. expected. September forecasts suggested that US interest rates could reach 4.5% by the end of the year and 4.75% at the start of 2023, but last week’s press conference prompted markets financiers to consider the idea that the final peak in the fed funds rate is now likely to be somewhere . above the 5% threshold. This lifted the dollar and weighed on the euro at the time, and while a stronger-than-expected inflation outcome on Thursday should encourage further speculation about this situation, it will pose a risk to the ongoing temporary recovery in the European Union. euro / american dollar.
Forecast of the Euro against the US Dollar today:
Returning to the technical analyzes of the EUR/USD pair, we have often stressed the importance of the stability of the currency pair above the parity price to move on to the possibility of changing the bearish outlook that has dominated performance in the past period. According to the performance on the daily chart below, the general trend will turn upwards if the bulls head towards the resistance levels of 1.0120 and 1.0200, respectively, as the breakout of the general trend is underway. and lack of dynamism.
On the other hand, and over the same timeframe, EUR/USD’s move towards the 0.9890 support level will be important to confirm the bears controlling the trend.
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