Today we shall take a look at the EUR/USD currency pair. After trading in a narrow range since the beginning of November, the pair ended last week with a massive drop and is currently trading around 1.1440, which is the lowest level since July last year.
The European single currency will most likely continue to lose positions against the dollar. One simple reason for this is the huge divergence between the monetary policy of the European Central Bank and the Federal Reserve. Though the Fed refused to move up its timeline about interest rate hikes, it did at least start unwinding its bond buying, unlike the ECB. Plus, a rate hike in the European Union will definitely come long after the Fed has started with its own hawkish measures. There is a significant difference between the bond yields in the EU and in the US, which is working out in favor of the dollar. Any hawkish signals from the United States, which are looking increasingly more likely, will only weaken the euro further.
As for these signals, last week’s inflation reports were definitely one of them. Inflation climbed higher than expected, which means the Federal Reserve might have to consider increasing the interest rate sooner than Chairman Jerome Powell seemed inclined at the regulator’s last meeting. No matter how many times he states that the current spike in inflation is transitory, with that number running close to 6%, there might soon come a time when enough is enough. Transitory or not, economists don’t wish to see inflation getting out of control. If things continue this way, we are likely going to see a rate hike next year, even though the Federal Reserve has denied that so far. For this reason, the dollar will continue to be stronger than the euro.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1444, with the price currently trading just above it. The daily support levels lie at 1.1437 and 1.1434. The daily resistances are located at 1.1447 and 1.1454. The indicators of technical analysis strongly agree in recommending a sell position today.
