Euro edges lower ahead of Spanish CPI

• Thursday:   US unemployment claims rise unexpectedly
• Friday:        Spanish CPI projected to accelerate

The euro has edged lower on Thursday. In the North American session, EUR/USD is trading at 1.1079, down 0.25%. On Wednesday, the euro closed above the 1.11 line for the first time since July.

US unemployment claims higher than expected

US unemployment claims, released earlier today, climbed unexpectedly to 218,000, up from an upwardly revised 206,000 a week earlier. The reading was higher than the consensus estimate of 210,000. The higher-than-expected release may garner some headlines but the Fed won’t be too concerned, as the four-week moving average, which smooths out week-to-week moves, remained almost the same as the previous four-week moving average.

The US labour market has remained strong despite the Federal Reserve’s steep rate-tightening cycle. The US economy is in good shape and there is growing confidence that the Fed will be successful in guiding it to a soft landing. The markets have priced in an 86% probability of a rate hike by March but the Fed is showing more caution, with some Fed members warning that rate cuts are not necessarily imminent. Still, the fact that the Fed is on board for rate cuts next year has lifted risk appetite and sent the US dollar in retreat against the major currencies.

Spain kicks off inflation releases on Friday, with Germany, France and the eurozone to follow next week. Inflation has been heading lower in the major eurozone economies and the markets have priced in up to six rate cuts next year. ECB President Lagarde has pushed back against these expectations, saying that rate cuts were not discussed at the December meeting.

Spain’s CPI is expected to rise in December, with a market consensus of  3.4% y/y and 0.3% m/m. In November CPI eased to 3.2% y/y and -0.4% m/m.

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EUR/USD Technical

• EUR/USD tested resistance at 1.1086 earlier. Above, there is resistance at 1.1144
• 1.1050 and 1.0992 are providing support

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