EUR/USD continues to have a quiet week and is unchanged on Tuesday, trading at 1.0538.
US inflation expected to fall
The currency markets have been calm today, but that could change in the North American session, with the release of the US CPI report. The consensus stands at 7.3%, following a 7.7% gain in October. The timing of the report is interesting, as it comes just one day before the Federal Reserve meeting on Wednesday. We have seen the equity markets jump after softer-than-expected inflation reports, on hopes that the Fed might end up easing on policy and reversing its hawkish stance. The response of the Fed to market exuberance was to double down with a hawkish message and parade a stream of Fed members who reiterated that the Fed had no plans to pivot as inflation remained unacceptably high.
If inflation is softer than expected, will we see risk appetite jump and the US dollar sink, as we did after the October CPI report? The timing of the release could play a factor here, as the markets might show an abundance of caution even if inflation weakens, with the Fed meeting on Wednesday.
ZEW Economic Sentiment improves
Germany’s economic outlook remains difficult, and financial experts have been pessimistic, with ZEW Economic Sentiment falling as low as -61.9 in October. Since then, the outlook has improved and rose to -23.3 in December, up from -36.7 in November. There is still a ways to go to reach positive territory, but at least the trend is in the right direction. The factors driving the improved outlook include a stabilisation in energy prices and expectations that inflation will decline in the coming months. Eurozone ZEW Economic Sentiment showed similar numbers, which indicates that sentiment for the eurozone economy is slowly improving.
- There is resistance at 1.0605 and 1.0694
- EUR/USD has support at 1.0524 and 1.0453
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