Euro edges lower, US CPI looms

The euro is slightly lower on Friday. In the European session, EUR/USD is trading at 1.1271, down 0.19% on the day.

Markets eye US CPI

With no tier-1 releases out of the eurozone today, the euro is trading quietly. That could change in the North American session, when the US releases the November inflation reports. The consensus is that CPI will accelerate to 7.0% y/y, which would be up from the October rate of 6.2%. If CPI provides an upside surprise, it would raise speculation that the Fed will double its taper at the January meeting. That would raise the chances of an earlier rate hike and boost the US dollar. Fed Chair Powell retired the phrase “transitory inflation” and it appears that the Fed has accepted that hot inflation isn’t going anywhere.

The ECB holds a policy meeting next week, and high on the agenda is the bank’s monetary support for the eurozone economy. The ECB’s 1.85 trillion euro emergency pandemic programme, the PEPP, has been in place since March 2020. Although the eurozone continues to struggle with Covid, the economy is showing improvement and the bank plans to wind up PEPP in March 2022. The burning question is what to do with the bank’s Asset Purchase Programme (APP), which has been utilized to keep inflation close to the 2% target and is running at 20 billion euros per month. The ECB is expected to maintain the pace of the APP, while giving itself some flexibility to increase QE if needed. In a research note, Danske Bank referred to the expected ECB move as “baby steps towards normalization”. The heavily indebted members of the bloc, such as Greece, have voiced concern that the removal of the PEPP could result in a ‘cliff effect’ which would hurt these poorer countries.

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 EUR/USD Technical

• EUR/USD has support at 1.1236 and 1.1163
• The next resistance lines are 1.1383 and 1.1457

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