All eyes on eurozone CPI

EUR/USD is going to be at the forefront of traders’ minds in the run up to the flash eurozone CPI data release. Thin volumes are expected in GBP/USD, as many US traders will be out of the office.

Dollar and euro currency
Source: Bloomberg

Euro decline slows ahead of CPI report

The euro spent the overnight session trading within a range of $1.250-$1.2560 as the US holiday has sucked volatility out of the market. Movements are anticipated to be low in the run up to the flash CPI and unemployment data, which are due out at 10am (London time). Deflation is a major concern for the European Central Bank so a reading below the 0.3% expectation is likely to renew a wave of EUR/USD shorting. OPEC’s decision to keep production rates unchanged has sent oil prices crashing which will keep the deflation fears on high alert in the coming months.

Turning our attention to the unemployment report, the consensus is for a level of 11.5%, which could mean no change from the September reading. I would put more weight on the inflation data but the jobless rate also feeds into the stagnation of the eurozone economy.

The euro has managed to break through $1.25 on several occasions this week but that was largely down to a pullback in the US dollar, which should not be confused with euro strength. The EUR/USD pair has been in decline since May and appears to be running out of steam. As Alastair McCaig stated, $1.24 has acted as support. If EUR/USD does clear $1.25 again, it is likely to run into resistance at the 50-day moving average of $1.2578. A move through this level will be required to help negate the downward trend. 

Sterling slides overnight

The pound has fallen through the 200-hour moving average of $1.5688, as its losses accelerated on the back of the UK Nationwide HPI survey dropping from 0.5% in October to 0.3% in November. We are not anticipating any major economic announcements from the UK, or the US, in the remainder of the session so traders won’t have anything to sink their teeth into.

Any moves lower in GBP/USD are likely to be supported by the $1.56 mark. I suspect this morning’s decline is just a temporary cool off in GBP/USD before the next attack on the $1.58 mark. The Federal Reserve may be leading the race against the Bank of England for who will increase rates first, but that phrase of ‘considerable time’ is a little too vague for traders’ liking. We could see another pullback in the greenback as recent economic data from across the pond hasn’t been too hot. 

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