Forex Analysis & Reviews: 08.12.2022 - The euro didn't get ahead of...

InstaForex - Official partner of Dragon Racing

This section features the most important information about trading with InstaForex. We provide both analysis from leading experts for experienced traders and articles on trading conditions for beginners. Our services will help increase your profit potential.

Become Trader

Account Opening

See also

Trading Conditions

Forex Analytics

Charts

This section is designed for those who are just starting their trading journey. InstaForex educational and analytical materials will meet your training needs. Our experts' recommendations will make your first steps to trading success simple and clear.

Start as Beginner

How to start trading

Useful information

Training and recordings

InstaForex innovative services are an essential element of productive investment. We strive to provide our clients with advanced technical capabilities and make their trading routine comfortable as we are recognized as the best broker in this regard.

Become Investor

PAMM System

ForexCopy System

Passive investments

OYS account

Partnership with InstaForex is beneficial and top-tier. Join our affiliate programs and enjoy bonuses, partner rewards, and the possibility to travel with the team of the world-renowned brand.

Become Partner

Main Page

Partner Area

Advantages for Affiliates

Registration

This section contains the most lucrative offers from InstaForex. Receive bonuses when topping up an account, compete with other traders, and get real prizes even when trading in a demo account.

All Promo Campaigns

Bonuses

Contests

Events

Holidays with InstaForex are not only pleasant but also useful. We offer a one-stop portal, numerous forums, and corporate blogs, where traders can exchange experiences and become successfully integrated into the Forex community.

Full details

Forums

We are in social networks

Forex humour

Forex Portal

InstaForex is an international brand created in 2007. The company provides services for online FX trading and is recognized as one of the world's leading brokers. We have won the trust of more than 7,000,000 retail traders, who have already appreciated our reliability and focus on innovations.

Learn More

History

Why Choose Us

InstaSport

Regulation

Company News

Awards

InstaForex Stars

InstaForex Offline

Headquarters

Key documents

Social Responsibility

InstaForex Loprais Team - Official participant of the Dakar rally

08.12.2022 11:48 PM

The euro didn't get ahead of the curve

Why is the euro rising? It would seem that the EURUSD bulls have plenty of obstacles. The federal funds rate is higher than the ECB deposit rate. The U.S. economy is clearly stronger than the European economy, which has quite likely already plunged into recession. Investor fears are still very high. The armed conflict in Ukraine is far from over, the pandemic in China has not been defeated, monetary tightening by the Federal Reserve continues and is weighing on US stock indices.

In fact, markets are rising on expectations. There is always some narrative that investors are reeling from. Right now the narrative is that U.S. inflation will continue to slow down, the Fed will bring rates to 5%, and then take a long pause. However, if we go back to the summer, the main idea was a recession in the eurozone due to its proximity to the war zone and the energy crisis. The assumption was that the European Central Bank would not be able to raise borrowing costs even higher under such conditions.

By the end of 2022, it was clear that the EU was well prepared for winter. It had built up its gas reserves, which, coupled with warm weather, contributed to a drop in the price of blue fuel and a more optimistic picture of the economy of the currency bloc. The recession now appears shallow and short-lived. The ECB can raise rates with a clear conscience. At the same time, a number of comments from Governing Council officials, including chief economist Philip Lane, convinced markets that the cost of borrowing will rise by 50 bps.

Dynamics of expectations for ECB deposit rate increase in December

In fact, a single report of slowing European inflation in November does not mean that consumer prices have passed their peak. In addition, a series of strong macroeconomic indicators for the euro area makes the ECB feel confident. The currency bloc's economy is taking a hit from higher rates, so why not keep it up? For example, Bank of Slovakia President Peter Kazimir believes that borrowing costs can be raised by 75 bps in December.

Thus, the reasons for the EURUSD rally are clear. Moreover, due to the undervalued expectations for the deposit rate, the pair is able to go even higher. What can make it turn back? First of all, an unexpected acceleration of inflation in the US. And of course, the Fed's dissatisfaction with the weakening of financial conditions. That is why the euro bulls are in no hurry to add money to long positions. Why climb ahead? Isn't it better to wait for the important events of the week by December 16, put aside fears and open new longs with a clear conscience? The result of such passivity is consolidation.

Technically, the upper limit of the fair value range at 1.054 and the pivot level at 1.0565 prevents the price from reaching the target at 161.8% according to the Crab pattern. Even if these resistances are overcome, prior to the release of U.S. inflation statistics, EURUSD risks backtracking. Therefore, it is better to use the pullback for short-term selling.

You have already liked this post today

*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.