In two weeks, the currency market will de facto go on a Christmas/New Year vacation, which will not end until early January. But before leaving, traders will "slam the door loudly," reacting to the key events of December.
The upcoming week is packed with significant events for the EUR/USD pair. Key November inflation data will be released in the US, and the European Central Bank will hold its final meeting of the year in Frankfurt.
On Monday, traders will focus on China's November inflation report. With an otherwise empty economic calendar, this release could significantly influence USD pairs, but only if the results deviate from forecasts.
In October, China's Consumer Price Index (CPI) fell to 0.3% (forecast: 0.4%). The indicator shows a downward trend for the second month, reflecting weakening consumer demand. November's CPI is expected to rebound to 0.4%. If inflation unexpectedly slows further, the USD might gain indirect support due to heightened risk-off sentiment.
Wholesale inventory data will be published later during the US session, though it's a secondary macroeconomic indicator unlikely to significantly impact EUR/USD.
On Tuesday, the US will release the labor cost index, measuring the annual change in employer expenses per employee (this considers not only salary deductions but also taxes and payments to other funds). This lagging indicator could influence the USD only if it diverges significantly from expectations. The index is forecasted to decrease to 1.3% in Q3, following drops to 1.9% in Q2 and 2.4% in Q1.
Wednesday brings the week's most crucial macroeconomic report: the November US Consumer Price Index (CPI). Given recent Federal Reserve statements, this report could determine the outcome of the Fed's January meeting and possibly the December one.
For instance, Fed Governor Christopher Waller has indicated support for pausing the easing cycle if the data contradict forecasts of slowing inflation—that is, if the CPI and PPI accelerate again. At the same time, Waller spoke about the pause not hypothetically but in the context of the December meeting.
Similarly, San Francisco Fed President Mary Daly suggested that rate hikes might resume if inflation accelerates. For the most part, the rest of the members of the U.S. central bank called for a slowdown in the pace of policy easing but did not rule out "other scenarios." Among them is Jerome Powell, who has also recently toughened his rhetoric.
In other words, the CPI is significant in current circumstances.
According to forecasts, Headline CPI is expected to rise to 2.7% YoY (up from 2.6% in October). If realized, it could signal a reversal in the six-month downward trend seen through September. In October, the Headline CPI unexpectedly increased, and if it comes out at least at the forecast level (not to mention the "green zone") in November, then we can already talk about a certain trend, which will not please the Fed representatives.
The Core CPI is expected to remain at 3.3% YoY. The indicator was at the same level in October and September. The stagnation of the core CPI adds to Fed concerns amid rising overall inflation.
Thursday is another critical day for EUR/USD, with the ECB's final meeting of the year taking center stage during the European session. The base-case scenario suggests a 25-basis-point rate cut. Additionally, the ECB will release its quarterly projections on rates and macroeconomic indicators. After the latest data on the growth of the European economy and inflation in the eurozone, the 50-point scenario is not even hypothetically considered. Therefore, reducing the rate by 25 points will not substantially impact the euro and, consequently, on EUR/USD. Traders are interested in further prospects for easing the monetary policy. Therefore, the market's main attention will be focused on the main points of the accompanying statement and the rhetoric of Christine Lagarde.
Recent Eurozone data shows that Q3 GDP growth reached 0.4% QoQ (forecast: 0.2%), the strongest growth rate since the beginning of the year before last. On an annual basis, GDP increased by 0.9% (forecast: 0.8%), the strongest growth rate since the first quarter of 2023.
As for inflation, Headline CPI rose to 2.0% (forecast: 1.9%), and the core remained at the previous month's level, 2.7%, with a forecast of a decrease of 2.6%. Inflation of service prices (one of the report's most important components, which is closely monitored by the ECB) remained at a high level—3.9%.
These figures suggest that the ECB will continue easing monetary policy moderately. During the post-meeting statement, Lagarde is expected to emphasize a data-dependent approach.
The Producer Price Index (PPI) will be released in the US session, another vital inflation indicator alongside CPI. The Producer Price Index (PPI) will be released in the US session, another vital inflation indicator alongside CPI. Forecasts suggest that the headline PPI is expected to accelerate to 2.5% YoY, while the core PPI is expected to rise to 3.2% YoY. A stronger PPI print could support the USD, especially if CPI also meets or exceeds forecasts (not to mention the "green zone").
Eurozone industrial production data will be published on Friday. In monthly terms, the indicator should show positive dynamics, but it will remain in the negative area (-0.1% in October against -2.0% in September). In annual terms, the indicator should fall to -3.0% after falling to -2.8%.
The Import Prices Index will be released in the US session. Though secondary, it provides additional context for inflation trends. Forecasts indicate a rise to 1.0% YoY in November (up from 0.8% in October and -0.1% in September).
The spotlight will be on US inflation reports (CPI and PPI) and the ECB meeting. Accelerating US inflation would boost USD demand since, in this case, traders will "remember everything": Mary Daly's hawkish statements, strong Nonfarms, and pro-inflationary policies under the incoming Trump administration.
Meanwhile, the ECB's dovish tone amid rising Eurozone inflation could weigh on the euro.
Short positions on EUR/USD become relevant if the pair breaks below the 1.0530 support level (the middle Bollinger Band and Tenkan-sen line on D1). The first target is 1.0470 (the lower line of Bollinger Bands, coinciding with the lower border of the Kumo cloud on H4), and the second target is 1.0420 (the lower line of Bollinger Bands on D1).
*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.
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