Euro Dollar Outlook: EUR/USD Wrestles with Resistance at Prior Support
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Germany, ECB, Euro Forecast:
- EUR/USD holds steady around big technical resistance at prior support of 1.035
- German inflation prints at 10% below forecasts of 10.4%
- Euro inflation on the horizon while US data floods the economic agenda for the remainder of the week
Euro Fundamentals – Inflation, US PCE and NFP's Ahead
Germany’s inflation rate (YoY) remains in double digits with headline inflation rate printing at 10%, below forecasts of 10.4%.
Since The Euro has made a decent recovery against its US Dollar counterpart as prices climb towards 1.050. With USD weakness and expectations that the Federal Reserve will announce a 50bps rate hike at the December FOMC (vs a 0.75bps increase by ECB) has supported the bullish move.
FX traders can monitor central bank announcements via the central bank calendar
While operating under a dual mandate of achieving full employment (unemployment rate below 4%) and price stability, elevated inflation remains a key issue for central banks. As the Federal Reserve and the ECB (European Central Banks) continue maintain a hawkish narrative, aggressive rate hikes have raised the probability of a recession.
With supply constraints driving energy prices throughout last year, the ongoing war in Ukraine and lockdowns in China have placed additional pressure on growth forecasts. Although the shift in risk-sentiment has driven Dollar strength since the beginning of the year, a reliance on Russian oil and gas has made the Euro particularly vulnerable.
However, after falling to a 20 year low of 0.953 in September, expectations of a slower pace of tightening by the Fed has supported EUR/USD strength.
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EUR/USD Technical Analysis
With the major currency pair rising above parity (meaning EUR/USD trades at 1.00), surge in bullish momentum has driven price action to a monthly high of 1.0497. As psychological resistance holds at 1.050, the long upper wick of yesterday’s candle illustrates a strong zone of technical resistance.
A rejection of resistance allowed bears to drive prices lower before reaching a low of 1.033 (at the time of writing). As the daily chart below highlights the manner in which the 1.0350 handle has helped cap the upside move in the past and may continue to do so in the short-term.
With this psychological level coming into play back in May, August and earlier this month, a hold above this level could drive prices higher with the next big level at 1.050.
EUR/USD Daily Chart
Chart prepared by Tammy Da Costa using TradingView
However, for the remainder of the week, a wide range of economic data could drive volatility for the remainder of the week making EUR/USD vulnerable to any surprises that could impact the economic outlook.
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--- Written by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.