ECB may provide trigger for EURUSD decline

27 November 2023 106
ECB may provide trigger for EURUSD decline

Inflation in the eurozone probably declined this month to its lowest level since July 2021, encouraging the ECB as it awaits the results of monetary tightening.

Core inflation, which excludes such volatile elements as energy prices, is expected to weaken again.

European consumer price indices will be released on Thursday and will be the last crucial markers for the region before the European Central Bank's decision on December 14.

The ECB is likely to keep interest rates unchanged for the second consecutive meeting.

President Christine Lagarde said on Friday that policymakers can now “monitor attentively” as they judge how long to keep borrowing costs high, and decide whether the next move is “up or down.”

ECB officials are watching the core consumer price index most closely. This indicator is currently above the 2% target, but is also slowing down. Economists expect the index to reach 3.9%, which would be the lowest level in about a year and a half.

Policymakers warned that there could be a temporary rise in inflation over the next few months due to the impact of year-on-year data comparisons, but the prevailing direction is downwards.

If inflation downtrend in the eurozone develops the same way as in the U.S., EURUSD is expected to move in different directions in a “tug-of-war” manner.

Eventually, much will be determined by where the rate of inflation decline shows the best result and whose officials, the Fed or the ECB, will be more determined about the outlook for policy easing.

The EURUSD pair rose steadily in the previous two weeks, so a response from the eurozone is expected, and at the very least, a EURUSD correction down into the 1.075–1.080 zone.

The overall recommendation is to sell EURUSD.

Profit should be fixed at the 1.08 level. Possible loss at the level of 1.10.

This content is for informational purposes only and is not intended to be investing advice.

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