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The Euro is Recovering Sfter a Sharp Decline the Day Before

1/4/2023 11:38 AM

The euro shows moderate growth against the US dollar during the Asian session, recovering from a sharp decline the day before, as a result of which the EUR/USD pair updated local lows from December 12. The US currency is supported by the expectations of market participants regarding further tightening of monetary policy by the US Federal Reserve, as well as a general improvement in prospects in the national economy. In addition, quotes are strengthening ahead of the publication of macroeconomic statistics this week.

Today, the release of the December Institute of Supply Management (ISM) Non-Manufacturing PMI is expected, where the indicator is predicted to decrease from 49.0 points to 48.5 points. Closer to the close of the day session, the market's attention will be drawn to the minutes of the last meeting of the US Federal Reserve, which may indicate further actions of the regulator in monetary policy. At the moment, more than 70% of analysts expect interest rates to rise by 25 basis points to 4.50-4.75% per annum in February. At the end of the week, data on employment in the private sector and the final report on the labor market for December will be presented in the US.

In turn, statistics from Germany provided moderate support for the quotes of the single currency on Tuesday. The Consumer Price Index slowed in December from 10.0% to 8.6% YoY, exceeding market expectations at 9.0%, and MoM inflation fell to 0.8% after −0.5% in November. The Harmonized Consumer Price Index for the same period decreased from 11.3% to 9.6%, ahead of forecasts of 10.7%.

Meanwhile, against the background of the sanctions policy on the supply of Russian pipeline "black gold", which entered into force on January 1, refineries in Schwedt and Leuna (Saxony-Anhalt) predict a significant reduction in capacity. At the moment, the possibility of replacing the missing volumes with the export of Kazakh oil via the Druzhba pipeline is being considered, the trial shipment of the first batch of which may take place as early as January. Earlier, the Minister of Foreign Affairs of the Republic of Kazakhstan, Mukhtar Tleuberdi, stated that the country can export from 2.0 million to 5.0 million tons of "black gold" per year. To support the industry, the German government will allocate more than 1.0 billion euros. Among other things, the investment will be used to expand the pipeline from Rostock to Schwedt, which so far has only a small capacity.

On the daily chart, Bollinger Bands show a downward reversal: the price range is expanding from below, not keeping up with the "bearish" mood in the market. MACD is going down preserving quite stable sell signal (located below the signal line). Stochastic is rapidly approaching its lows, indicating the risks of the single currency being oversold in the ultra-short term.

Resistance levels: 1.0600, 1.0657, 1.0700, 1.0747. | Support levels: 1.0550, 1.0500, 1.0450, 1.0400.

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