Yesterday, the EURUSD currency pair sharply rebounded from a monthly minimum. Quotes rose above the level of 1.08, but failed to gain a foothold there. By the end of Tuesday's trading session, half of the daily achievements of the bulls were lost, and today there are no attempts to grow. There were technical prerequisites for the local upward movement of EURUSD, but fundamental reasons are still insufficient.
Yesterday's surge of volatility on the currency market was ensured by the release of statistics on inflation in the US for November. The data were mostly in line with analysts' forecasts, except for the monthly price growth. With expectations of a zero result, the indicator rose by 0.1%. The high comparison base of 2022 continues to play on the slowdown of annual inflation, but the monthly indicator is far from showing such positive results.
Once again, the key contribution to the decline in the US inflation rate was made by petrol prices, which fell by another 6% in November. At the same time, most goods and services continue to rise in price. Kurt Rankin, senior economist at PNC Financial, pays special attention to the property market. In his opinion, until the cost of renting and buying houses normalizes, the Fed should not start a cycle of interest rate cuts.
At the same time, the EU economy is getting closer to recession. According to the latest Bloomberg poll, the consensus forecast of analysts suggests a decline in European GDP by the end of the 4th quarter of 2023. Since a negative result was already recorded in the previous quarter, this will make it possible to officially declare a recession. According to Jorg Angele from Bantleon Bank, the development of the EU economy is hampered by high interest rates. The budget crisis in Germany and weakness in global demand additionally hinder GDP growth in the eurozone.
Today, EURUSD dynamics primarily depends on the outcome of the Fed meeting. If Jerome Powell's speech turns out to be at least moderately tough, traders may quickly switch to selling euros and buying dollars. Quotes have a short-term downside potential up to the level of 1.07.
The following trading strategy may be offered:
Sell EURUSD at the current price. Take profit 1 – 1.075. Take profit 2 – 1.07. Stop-loss – 1.085.
Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.