CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

EUR/USD Forecast: US Dollar Falls on Fading Inflation Expectations

Article By: ,  Head of Market Research
January 8, 2024 5:03 PM

EUR/USD Key Points

  • US Consumer Inflation Expectations continue to fall, boosting the market-implied odds of a Fed rate cut in March.
  • EUR/USD has established a key short-term support level at 1.0875.
  • Given the quiet economic calendar, EUR/USD may consolidate with a slight bullish bias over the next couple of days ahead US CPI and PPI.

EUR/USD Fundamental Analysis

After Friday’s NFP- and ISM-induced volatility, forex traders are catching their breath to start the new trading week. The economic calendar is essentially barren, though we did see the latest Survey of Consumer Expectations from the New York Fed this morning.

Mirroring other recent readings on price pressures, consumer expectations for inflation continue to fall, with median 1-year inflation expectations falling to just 3.0%, the lowest level for this reading since January 2021. Meanwhile, 3- and 5-year inflation expectations also dropped to 2.6% and 2.5% respectively.

While far from a top-tier release, especially with both the headline CPI and PPI reports scheduled for later this week, this report increases the odds that the Fed will cut interest rates in March at the margin. Not surprisingly, we’ve seen the market-implied odds of a such a move tick up toward 70% in the wake of the release per the CME’s FedWatch tool, though traders still have much to play for heading through the latter half of the week and beyond:

Source: CME FedWatch

Euro Technical Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

Keying in on the world’s most widely-traded currency pair, EUR/USD dropped as low as 1.0875 in the aftermath of Friday’s NFP report before recovering to finish the day flat. That low, along with the confluence of the rising 50-day EMA and 38.2% Fibonacci retracement, means 1.0875 will be a key support level to watch this week.

So far this week, EUR/USD is in rally mode, approaching the psychologically-significant 1.1000 level as we got to press. With little in the way of major economic data until the second half of the week, I wouldn’t be surprised to see EUR/USD generally consolidate with a slight bullish bias over the next couple of days before volatility potentially picks up around the release of the US CPI and PPI reports on Thursday and Friday.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024