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EUR/USD pair to watch in Forex this week

Taking into account the data on inflation and retail sales from the Eurozone, as well as data on employment in the US, the EUR/USD pair may be volatile in forex this week.

The highlight of the week in the Eurozone will be the December release of the consumer price index. If the preliminary German CPI is any indication of what to expect from the eurozone, it could be weaker as the published figure came in at 8.6% y/y compared to the 9.1% y/y expected and November reading. 10%. This was the first single-digit fall in inflation in Germany since August. Expectations for eurozone news fell to 9.7% year on year from 10.1% year on year in December.

This will bring shares back below 10% for the first time since October. The core inflation rate should remain unchanged at 5% year on year. At the ECB’s December meeting, Christine Lagarde said “it’s clear we should expect a 50 basis point hike for some time” and she raised the possibility of three more 50 basis point hikes. However, if inflation continues to slow, will the ECB have to raise another 150 basis points in the face of a looming recession?

The current deposit rate is 2.5%. In addition to the consumer price index, the Eurozone will also publish data on retail sales on Friday for November. Quotes are expected to rise to 0.5% m/m from the previous value of -1.8% m/m. This will be only the second positive draw since April!

This week there will be two macroeconomic events that may increase market activity in the US. First, this is the minutes of the FOMC meeting in December. Recall that Powell was hawkish in meeting the Fed’s scatter charts showing an average final rate of 5.1% for federal funds. The current rate is 4.5%. In addition, the statement notes that the current rate hike is “likely appropriate” and the committee sees no rate cuts in 2023.

In addition, at a press conference, Powell noted that much more evidence would be needed to provide confidence that inflation is on a sustainable downward trajectory. Markets will be watching to see if the general tone of the meeting was indeed hawkish and if any of the participants discussed the implications of a possible recession later this year.

The second event that could affect the markets is the December nonfarm payrolls report due out on Friday. Current expectations are +200,000 compared to November’s +263,000. The unemployment rate is expected to remain unchanged at 3.7%. Average hourly wages will also be monitored closely to see if wages continue to rise with inflation. An increase of 0.5% m/m is expected compared to the previous value of 0.6% m/m.

Since December 15, 2022, the euro/dollar pair has been relatively calm in forex, maintaining a range between 1.0584 and 1.0736 during the last 2 weeks of 2022. However, on Tuesday the pair formed a daily range of 164 points, knocking out a range of lows. , reaching 1.0519. By the end of the year, the pair returned to the 61.8% Fibonacci retracement level from February 2022 highs to September 2022 lows near 1.0747. The price was capped there, and the EUR/USD pair declined by early 2023.

EUR/USD daily chart

Source: Tradingview, Stone X

In the 4 hours chart, the first level of support for the EUR/USD pair is at the 7 December 2022 low at 1.0443. Below this, long-term horizontal support moves to 1.0348/1.0360 before returning to the Nov 30, 2022 low at 1.0349. However, if the EUR/USD price recovers, the first resistance will be at the January 2 low at 1.0650 and then at the December 15, 2022 high at 1.0736. Above, the price could reach a May 30, 2022 high at 1.0786.

EUR/USD 4-hour chart

euro dollar forex January 3, 2023Source: Tradingview, Stone X

Taking into account the data on inflation and retail sales from the Eurozone, as well as data on employment in the US, the EUR/USD pair may be volatile in forex this week. Don’t forget that this is also the first week of the year. Therefore, fund managers may need to “make money” and take positions, which can lead to additional volatility! Manage risk accordingly!

Joe Perry, CMT, FOREX.com » Official site

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Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.

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