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EURUSD Market Update

12/19/2022 10:40 AM

The European currency shows weak growth, recovering from the "bearish" dynamics at the end of the previous trading week. The EUR/USD pair showed a decline on Thursday and Friday, retreating from its local highs from June 8 amid a general reduction in demand for risky assets.

The reason for the return of investors to the US dollar was the results of the meetings of world central banks last week. The European Central Bank (ECB), the US Federal Reserve and the Bank of England have decided to raise interest rates by 50 basis points, but also indicated that tight monetary policy is likely to be relevant for a longer time than originally estimated. All regulators still expect to return inflation to pre-crisis target levels of around 2.0% and are ready to sacrifice current economic growth for this. This is especially true for the UK, where financial authorities are already signaling a recession in the fourth quarter of 2022.

Released on Friday, December 16, the data did not provide significant support to the single currency. The Consumer Price Index in the euro area in November rose by 10.1% in annual terms, which exceeded the previous estimate by 0.1%, and in monthly terms the figure fell by 0.1%, justifying forecasts. The Core CPI in November showed zero dynamics in monthly terms and increased by 5.0% in annual terms. The focus of investors today is statistics from Germany on the level of business optimism from the Institute for Economic Research (IFO) for December. Current forecasts suggest a moderate increase in optimism and economic expectations, which may provide little support to the European currency.

The development of the energy crisis has put unprecedented pressure on the financial condition of the region after the abandonment of the Russian "blue fuel". Europe has lost about 1.0 trillion dollars (a total amount that includes increased tariffs for households and companies, partially offset by government measures of support) amid a sharp rise in energy prices since the outbreak of the Russian-Ukrainian military conflict in February, Bloomberg estimates. In order to avoid a shortage of resources in the coming winter, the European Commission has set a limit of gas in storage until February 1 at 45.0% minimum, which will allow to form a reserve before the end of the heating season. However, experts predict that even with the redirection of liquefied natural gas supplies and the emergence of new capacities, it will be difficult to fill the missing volumes, and the market will remain tight until 2026, until Qatar and the United States increase production.

Bollinger Bands in D1 chart show moderate growth. The price range is narrowing, reflecting the emergence of ambiguous dynamics of trading in the short term. MACD is going down having formed a new sell signal (located below the signal line) at the end of last week. Stochastic shows similar dynamics; however, the indicator line is rapidly approaching the level of 20, which indicates the risks of the single currency being oversold in the ultra-short term.

Resistance levels: 1.0600, 1.0640, 1.0700, 1.0747. | Support levels: 1.0550, 1.0500, 1.0450, 1.0400.

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