EURUSD Intrinsic Projection – Neutral
The resistance level of 1.09 was edging closer to the EURUSD after last week came to a conclusion. The European Central Bank (ECB) is presently leading the way against the Federal Reserve in what has become a contest amongst central bank speakers to maintain their credibility and stick with a highly hawkish narrative.
By concentrating on the dismal economic statistics coming out of the United States, markets are almost ignoring the Fed’s comments on raising the terminal rate to the 5% level by 2023. Having said that, considering how many Fed officials are united in their commitment to lowering inflation down to its target level, it could be stupid to do so.
The decline in the value of the dollar, rising inflation in the eurozone, and Christine Lagarde’s hard stance against inflation have all contributed to the EUR’s support. She voiced worry that China’s reopening would lead to higher energy costs in 2023 and that the ECB would continue to raise interest rates in an effort to reduce inflation to 2%.
This swiftly shot down any dovish buzz in the air, and it might be repeated this week as Lagarde and other ECB members have planned speeches. With recessionary fears rampant, there is a chance that a hike that is too aggressive could affect the region, but as things stand, it is almost probable that February’s rate decision will result in a 50bps increase.
The coming week appears to be heavily weighted in favor of the United States, but German data is a strong indicator for the eurozone and might boost EZ optimism if actual data come in as expected. Softer data would put real pressure on Fed hawks in the US, potentially causing the dollar to decline. Boeing is expected to get a significant increase in orders for durable products, and the GDP is expected to expand in Q4 2022.
Core PCE will also be scrutinized for any indications of additional inflationary easing. Estimates for Michigan consumer sentiment, which completes the week’s data, show a sharp rise in consumer confidence, which, if fulfilled, might have a negative impact on the EUR/USD.
EUR/USD Technical Assessment
Indicative of market uncertainty, the daily EUR/USD price action displays yet another rectangle consolidating pattern, although a breakout is imminent. The statistics for the following week might spur this movement, and a daily candle closure either above or below the rectangle’s support or resistance levels might suggest a short-term directional bias. The euro is approaching overbought levels, so even if bulls manage to drive the pair up to 1.1000, the price could drop quickly. We do not anticipate much more big upside (if any) in the near term.
