February 22, 2024

Weekly EUR/USD Overview: Dollar Gains From Vigorous Fed Tapering

The EUR/USD pair had no price activity in the first week of 2022. Surprisingly, the US Federal Reserve revealed in its December meeting notes that officials discussed reducing their bond holdings in the coming months.

The US Fed’s Financial Statements

A total of $8.3 trillion in Treasury and mortgage-backed securities presently sits on the Fed’s balance sheet. According to the statement, “nearly all members concurred that it would be acceptable to start financial statement outflow after the first rise in the target zone for the federal funds rate.”

For a rate hike, the Fed determined that the current pace of labor force strengthening could be maintained. Onto December nonfarm payrolls. It added 199K jobs in December, half the market’s expectations.

However, the unemployment rate fell more than expected to 3.9%. The results didn’t wow, but market players thought they were good enough for the Fed.

The Fed paper caused a run in government bond yields, indicating that US officials are more worried about inflation than they let on. The Dollar regained lost territory, putting pressure on Wall Street. The weak NFP data knocked on stocks.

Historic High Inflation

In December, Eurozone inflation rose to 5% YoY, the most on record, from 4.9% in prior months. The German CPI climbed 5.3% in the same month, which was above expectations.

Inflation is skyrocketing, raising questions about whether the ECB should forsake its monetary policy prudence.

Retail sales in the Union grew 1% MoM and 7.8% YoY in November, both above expectations. German retail sales rose 0.6% in the same month but were down 2.9% year-on-year.

Markit’s final December PMI data revealed a marked decrease in business expansion after 2021, whereas the US-approved ISM PMIs for the same month fell considerably but remained inside expansion levels.

The Coronavirus Continues To Stifle Development

Before the outbreak of the Omicron coronavirus, the world economy was slowing down. The leading COVID variant spreads like wildfire, placing a strain on the economy and disrupting services but causing few fatalities and hospitalizations.

The EU released the January Sentix Investor Confidence and November Industrial Production this week. This month’s CPI and retail sales are expected to rise by a modest 0.3%. It also issued its January Michigan Consumer Sentiment Index preliminary estimate.

EUR/USD Technical Forecast

EUR/USD CHART Source: Tradingview.com

The EUR/USD cross has been moving at 1.1300 since mid-November and continues to do so for now. The weekly chart shows technical signals pointing to more falls.

Chart patterns have just recovered from oversold values, with momentum still gaining but the RSI reverting south. With the 20 SMA crossing underneath all of the lengthier moving averages, the pair shows overall selling interest.

The pair are locked around an aimless 20 SMA daily while the lengthier moving averages continue to go south. Meanwhile, chart patterns had spent the week circling their midlines, showing no discernible direction.

The bearish argument will be stronger if the pair falls below the December low of 1.1220, targeting 1.1160. Upside resistance is around 1.1340 and 1.1385, with sellers likely to add shorts near the latter.

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