Euro (EUR/USD) Latest - Braced For a Fed and ECB Double-Header

EUR/USD Price, Analysis, and Charts

• The US dollar is on the back foot after Tuesday’s weaker-than-expected inflation reading.
• Fed chair Powell and ECB President Lagarde’s comments will be key.

The latest US inflation report showed price pressures easing further in November with falling gas prices helping to lower the cost of living. Annual inflation in the US is now at 7.1%, down from a 40-year peak of 9.1% seen in June this year.

Tuesday’s larger-than-forecast slowdown in inflation added to the recent optimism in the market that the Federal Reserve may soon take its foot off the accelerator and begin to slow down and reduce the size of, upcoming interest rate hikes. The US dollar fell sharply yesterday and is currently biding its time today ahead of the FOMC rate decision, updated dot plot and economic projections, and press conference.

For all market-moving economic releases and events, see the DailyFX Calendar

In Europe, the ECB will announce its latest monetary policy decision tomorrow (Thursday, December 15) at 13:15 GMT, followed 30 minutes later by the all-important press conference. Both the Fed and the ECB are expected to raise their borrowing rates by 50 basis points, keeping the rate differential between the two the same, but the central banks may differ in their outlooks for the months ahead. While the Fed may be looking to reduce the size of interest rate increases in the coming months, the ECB needs more positive economic data before it can begin to slow down. The differences in the two central bank’s projections for the months ahead will determine where EUR/USD trades in the short- to medium term.

The Euro made a fresh six-month high against the US dollar Tuesday before edging marginally lower. The 1.0674 high print is likely to be tested again in the near future leaving the late-May high around the 1.0790 level as the next upside target. The overall EUR/USD chart remains bullish with the pair comfortably above all three moving averages, while the pair continue to make fresh higher lows and higher highs. The pair look set up to make fresh multi-month highs, the question is, will the Fed and/or the ECB scupper the move?

EUR/USD Daily Price Chart December 14, 2022

Chart via TradingView

Retail trader data show 38.73% of traders are net-long with the ratio of traders short to long at 1.58 to 1.The number of traders net-long is 9.64% lower than yesterday and 22.44% lower from last week, while the number of traders net-short is 2.00% lower than yesterday and 7.94% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.

What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.