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Euro kicks off the week lower

Major currencies once again ended the week with mixed performance.  The worst performers included the Swiss franc (-0.32%) and the Japanese yen (-0.50%).  The aussie dollar ( 2.49%) topped the leaderboard, while smaller gains were seen in the Canadian dollar ( 0.88%), the New Zealand dollar ( 0.71%), the British pound ( 0.27%), and the euro ( 0.09%).

The EURUSD pair closed higher on Friday, December 10, up by 0.21% to 1.1316. The pair displayed a bullish body with a long lower shadow. During the first half of the session, the single currency dropped to 1.1265. Following the release of US inflation data the key pair rebounded to 1.1324.

Friday’s US CPI report showed that consumer prices surged 6.8%, a record high since June 1982, after rising 6.2% in October.

The yield on 10Y treasutry notes retreated (negative for the dollar) after the CPI print came out. Many expected inflation to come in even hotter, but it ran at 6.8%. The market took into account soaring consumer prices, and this triggered a correction for major currencies in the FX market. In the upshot, EURUSD rose to 1.1324.

Today’s macro agenda (GMT 3)

  • 15:00: OPEC monthly meeting
  • 16:00 Germany: Bundesbank official Johannes Berman speech
  • 20:00 UK: BoE financial stability report

Current outlook

Major currencies have been trading in the red after Friday rally. This week’s highlights include meetings of the US Federal Reserve, the ECB and the Bank of England, as well as press conferences by Jerome Powell and Christine Lagarde.

At its meeting later this week, the Federal Reserve is expected to speed up of the pace of QE tapering. The rate of decline in monthly bond purchases is likely to double to $30 bln, as a result of which quantitative easing could end in March. That said, Omicron might prompt the Fed to rethink its plans.

Technical analysis

By the time writing, the euro was trading at 1.1289. The euro corrected lower after rallying to 1.1324. Given that today is Monday and the economic calendar is blank, the odds are high of another leg down to 1.1280. Price action is still stuck in the November 30 range (1.1235-1.1383). This pattern will likely be breached after a speech by Powell on Wednesday, or Lagarde on Thursday.

If selling in the euro stops around 1.1280, a recovery to 1.1345 could be in the cards. In terms of technical analysis, a complex wave formation is shaping up in the FX market. An uptrend in the key pair fits this pattern.

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