EURUSD, H4
EURUSD was up +0.55% on Friday on fears the record rise in Eurozone consumer prices will force the ECB to tighten policy sooner than expected. December EZ CPI rose a record +5.0% y/y (data from 2001), stronger than the expected +4.8% y/y. EURUSD also found support after EZ Nov retail sales unexpectedly rose +1.0% m/m, stronger than the expected -0.5% m/m and the biggest gain in 5 months. Stronger data boosted German bond yields and strengthened euro rate differentials as the 10-year German bond yield rose to a 2-1/2 year high of -0.036%.
This week’s data consists of level two and three releases that will have little effect on the central bank in the coming months. Pressure increased after inflation hit another record high in December. Traders will be looking for signs that policymakers will give in under pressure, despite being reassured until now that inflation is still temporary.
Morgan Stanley believes that the Fed rate hike will go quite smoothly, while other central banks will switch from dovish to hawkish politics. This will lead to a convergence in the actions of regulators, putting pressure on the Dollar and driving up the EURUSD pair. This is in line with the views of Goldman Sachs strategists too.
EURUSD, H4
The pair continued to struggle in sideways trading from December to last week and the outlook is unchanged. Initial bias remains neutral at the start of the week. On the upside, continued trading above December’s month high of 1.1385 which became resistance would lead to a stronger advance back to the 1.1444 price level (the descending trendline border) and a break of the trendline would bring gains to around 1.1600 support which would become resistance.
On the downside, a break of 1.1186 will erase the buyers’ strength and the price will resume a bigger decline from the 2nd peak of 1.2263 to the next target at 1.1000 near the 76.8%FR level.
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Ady Phangestu
Market Analyst
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