Jan 10, 2024

This week’s inflation data from the US economy should determine whether we remain in an uptrend with the euro versus US dollar pair. 

EURUSD – Daily Chart

EURUSD – Daily Chart

EURUSD has been climbing since October to a high of 1.11. A break of the current trendline support could see the pair target 1.075. 

The data will be released at 9:30 pm HKT on Thursday but could start a correction in the euro currency. Investors expect another drop in core inflation to 3.8% from 4%. The annual inflation rate is expected to increase slightly from 3.1% to 3.2%. If the number came in higher, it could spark gains in the US dollar. 

Falling inflation has traders convinced of coming rate cuts, but any change in that outlook could see bets unwound. The month-on-month increase in inflation is anticipated to be 0.3%, marking the slowest pace of annual core price growth since May 2021. So, market positioning is biassed toward slowing inflation and Fed cuts. 

The US central bank also improved market sentiment by removing the recession talk from its latest meeting minutes. The word “recession” doesn’t appear in the minutes from the central bank’s last three meetings, which took place between September and December. Yet the term was seen more than a dozen times in the minutes from the preceding seven meetings, dating back to November 2022. 

With the chances of a recession fading and rate cuts from the central bank, markets should have support. But the euro is currently at risk from its recent rally being overdone. More stubborn inflation in the US could take some of the bullishness from the euro.

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