Euro on hold ahead of Eurozone CPI

It has been a busy week for EUR/USD, although the currency is unchanged on Friday. We could see some volatility before the weekend, with the release of the eurozone inflation and US employment reports.

Eurozone CPI expected to fall

Market participants and ECB policy makers are eagerly awaiting December’s eurozone inflation report. Germany, France, Italy and Spain all recorded a drop in December inflation, with German inflation slowing to 9.6%, down from 11.3% in November. The eurozone should follow this downtrend, and the forecast is for headline CPI to fall to 9.7%, compared to 10.1% in November. An important caveat is that inflation dropped in Germany and other bloc members due to government energy subsidies, and ECB President Lagarde has acknowledged that inflation could rebound once the subsidies come to an end. The real test will be the core rate, which excludes energy and other volatile components. Core CPI has been sticky and is expected to remain unchanged at 5.0%.

The ECB was late to the rate-tightening party and has had to tighten aggressively despite weak economic conditions in the eurozone. The central bank eased the pace of rates to 50 bp in December, down from 75 bp in October, but Lagarde warned that this should not be interpreted as a dovish pivot and added that more rate hikes were coming. The markets have priced in a 50-bp hike at the February 2nd meeting, although the ECB could change its mind, say to a 25-bp increase, if warranted by key economic data.

In the US, the week wraps up with the employment report, highlighted by nonfarm payrolls and wage growth. Unemployment claims and other employment indicators show that the labour market remains strong, despite a slowing economy. The ADP employment report, although not considered a reliable precursor to NFP, jumped to 235,000 in December, crushing the previous reading of 127,000 and the estimate of 150,000. An increase in the NFP would be a major surprise, as the consensus stands at 200,000, down from 263,000 in November.

.

EUR/USD Technical

  • EUR/USD tested resistance at 1.0528 earlier in the day. This is followed by resistance at 1.0612
  • There is support at 1.0440 and 1.0365

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.