EUR/USD steady, US inflation next

EUR/USD is almost unchanged on Monday, trading at 1.0537.

Will US inflation report shake up euro?

It has been a relatively quiet December for the EUR/USD, which hasn’t veered far from the 1.0550 line. That could change this week, with key events out of the US. On Tuesday, we’ll get a look at the November CPI report. Inflation has slowly been dropping in the US and is expected to slow to 7.3% y/y, down from 7.7% in October. Still, the Fed nonetheless remains hawkish and has been reminding the markets at every opportunity that inflation remains unacceptably high and the current rate tightening cycle is far from over. The FOMC rate announcement comes on Wednesday, just a day after the inflation report.

The Fed’s message, or much of it, seems to have fallen on deaf ears. Investors have been seizing on any weak data, such as lower-than-expected inflation reports, to rush out and buy stocks, on the belief that the Fed is about to pivot and ease up on policy. True, the Fed has telegraphed that it will raise rates by 50 bp on Wednesday, after four straight hikes of 75 points. Still, a 50 bp move is large and certainly doesn’t indicate that the Fed is turning dovish, especially with the Fed reiterating that it expects the terminal rate to rise higher than it had anticipated. It will be interesting to see how the markets react to the inflation report.

Germany releases ZEW Economic Sentiment for December on Tuesday. Financial experts remain pessimistic about the economic outlook, but at least we are seeing an improvement – the forecast is -26.8, which follows -36.7 in November and  -59.2 in September.

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EUR/USD Technical

• There is resistance at 1.0605 and 1.0694
• EUR/USD has support at 1.0524 and 1.0453

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