German inflation must confirm the EUR/USD comeback, according to Fed statements.

Market Analytics and Technical Considerations

Key Points

• Amid guarded optimism in the market, EUR/USD increases bids to break a two-day decline.
• Reduction in China’s viral infections from a historic amount and initiatives to resurrect the real estate sector enhanced mood.
• Prior to the placed much emphasis, hawkish remarks from the Fed and ECB authorities tempt the pair buyers.
• German HICP provides an early signal for Eurozone inflation, while US CB Consumer Confidence is crucial for new momentum.

As buyers approach the 1.0400 level ahead of Tuesday’s European morning, the EUR/USD increases by 0.5 percent. In doing so, the important currency pair records its first daily advances in three coming days of both the US Confederation Board’s (CB) Consumer Confidence for the November month and the important German inflation indicator, the Harmonized Index of Consumer Prices (HICP) for that month.

The recent increase in the quotation may be attributed to waning concerns about China, falling US Treasury yields, and conflicting statements from US and European monetary policy experts.

According to the most recent official figures provided to Reuters, China’s daily COVID infections decreased from an all-time high of 40,347 to 38,645. This also adds to the upward performance of Chinese stocks when the national securities regulator eased a restriction on equity refinancing for publicly traded real estate companies, according to Reuters. The news reported that the China Securities Regulatory Commission (CSRC) has lifted a long-standing ban by announcing late on Monday that it will expand equity financing options, including private share placements for Chinese developers with stock listings in both China and Hong Kong.

On the contrary hand, President of the European Central Bank (ECB) Christine Lagarde stated on Monday that the economy is anticipated to contract through the remainder of the year and into 2023.  Lagarde continued by saying that the ECB’s primary instrument for battling inflation will continue to be interest rates. Peter Kazimir, president of the Slovak central bank and an ECB policymaker, made remarks on similar lines, stating that the “risk of depression in the Eurozone is increasing.” – Klaas Knot, a member of the ECB Governing Council, added, “Downturn not a done deal. Pablo Hernandez de Cos, an ECB policymaker, also said that the rate increases made so far are insufficient to bring inflation back to the desired level.

Officials from the Federal Reserve (Fed) were also engaged and tried to predict the US central bank’s upcoming steps while also examining the movements of the EUR/USD.

Thomas Barkin, president of the Richmond Federal Reserve Bank, stated recently that he is in agreement of gradual interest rate increases going forward as the government works to reduce excessive inflation. Prior to now, Cleveland Fed President Loretta Mester noted that supporting the pause in rate hikes would require several more positive inflation data and other indications of deceleration.

Despite Wall Street’s lackluster performance, the US stock futures and equities in the Asia-Pacific region post modest gains, reflecting the sentiment. Additionally, the US 10-year Treasury yields are still low at around 3.69% as of the time of publication, which weighs on the US Dollar in the risk-on environment.

Next, the preliminary readings of the German HICP for November, with a predicted YoY change of 11.3% from 11.6%, might put the EUR/USD buyers under pressure if they report a weaker result, which is less likely. Prior to Wednesday’s Eurozone HICP and Jerome Powell’s speech, though, a predicted decline in the US consumer confidence index would give the pair’s buyers reason for optimism.

Technical examination

The EUR/USD pair’s revival is unlikely unless it crosses a three-week-old prior support line, which is currently located at 1.0410.

IMPORTANT LEVELS TO WATCH

Indicators – Daily

EUR/USD – Euro US Dollar