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09.02.2023 11:46 PM
The euro refuses to give up

So much commotion over one U.S. jobs report! Bears on EURUSD are clinging to the odds of higher rates, a strong US economy and waning global risk appetite. They expect the pair to fall to 1.05. Bulls, on the contrary, are certain that nothing has changed and see the euro's current correction as an opportunity to buy this currency at a cheaper price. Opinions are divided in the market. It will be more interesting to see how it ends.

German inflation eased from 9.6% to 9.2%, this should hardly be acknowledged as a bearish factor for EURUSD. ING estimates that the European figure will be revised upward from 8.5% to 8.6%. In addition, the European Central Bank is interested in core inflation and it is still at a record high of 5.2%.

European inflation dynamics

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The ECB must act decisively to prevent inflation expectations from rising far above its 2% target, ECB policymaker and Bundesbank President Joachim Nagel said, reaffirming his call for more interest rate hikes. The head of the central bank of the Netherlands, Klaas Knot, also warned that the current pace of 50bp hikes may have to be maintained into May. Only a slowdown in core inflation will allow the ECB to slow down the rate of monetary tightening.

Consumer prices in the euro area are not far from record highs, and the ECB is not going to give up its hawkish rhetoric. If we add to that the undervaluation of European assets, a decrease in the terms of trade shock, which opens the way for restoring the trade balance, the overvalued US dollar and reflation in China, the chances of EURUSD growth look quite decent.

Another thing is that investors' renewed interest in the greenback makes the bulls doubt their strength. Impressive employment data reduce the risks of a federal funds rate cut before October. The dovish pivot is in question, and the market is increasingly speculating about the possibility of an increase in the cost of borrowing in the U.S. to 6%. This would be a real disaster for EURUSD.

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In my opinion, the U.S. inflation report for January will dot all the i's. According to Trading Economics, consumer prices will slow down from 6.5% to 6.3% and core inflation from 5.7% to 5.5%. If that's the case, the euro will regain its old trump cards and rally higher. Should the indicators be above the December levels, the pair's pullback will gain momentum.

Technically, on the EURUSD daily chart, bulls and the bears tussle for the lower limit of the fair value range of 1.0745-1.0925. If it stays in the bulls' hands, the pair will have a chance to rise to 1.08 and 1.082, which is favorable for opening long positions. On the contrary, closing below 1.0745 on the daily chart would increase the risks of a correction towards 1.071 and 1.068.

Pilih timeframe
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mnt
15
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30
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