Will we see 1,10 on EUR/USD before the FOMC meeting?

Monday on the global stock exchanges also presented itself in positive colors. Both indices in Europe and the US “closed” higher at the end of the day. Nasdaq "added" another 2 percent. and went above the downtrend line, which may be a signal for all lovers of technical analysis that technological companies have a chance to catch up with the losses that divide them to the Dow Jones index.

EUR / USD exchange rate appointed yesterday new local peakfollowed by a correction. So far, however, it turned out to be quite "shallow", because the exchange rate is approaching 1,09 again this morning.

Determination in the fight against inflation

The ECB remains credible in its determination to fight inflation, while the market still assumes that the cycle of interest rate hikes in the US may end soon, and the recession in the US will force the Fed to make the first cuts in the second half of this year. This means that the main currency pair is still on an upward path, and so far there are no signs of a change in sentiment.

Rumors about softening the attitude European Central Bank to their monetary policy are effectively denied by individual members of the Governing Council. Yesterday we received further statements that clearly cut off any discussions on this subject.

In the morning, Nagel spoke on this matter, later Kazmir, Stournars and Vujcic added their own. The EUR/USD pair, after rising to a level close to 1,0930, corrected itself to 1,0850 and from the "pattern" of candles in the chart, there were many indications that however, a correction awaits us in the short term. The dynamic "departure" from the local highs suggested that the short-term fuel for growth was running out. Now we should watch how the rate will behave after re-testing yesterday's highs. At the moment, everything indicates that this will happen.

Risk appetite

Today we have PMI for the euro zone on the calendar. These are preliminary readings for January. They will an important indicator of whether Europe will head into recessionwhether the mood has improved. Looking at the stock indices on the Old Continent, there is no doubt that the "appetite for risk" has been changed by all cases since the beginning of the year.

If the economy turns out to be robust despite high energy prices, inflation and interest rate hikes, then the likelihood of avoiding a major downturn increases. This, in turn, would indicate persistently high inflation risk (also due to second-round effects) and increased vigilance of the ECB. Then speculations will increase that the institution will be forced to continue the hike cycle longer than the bank is currently signaling and longer than it is valued by the market. This would be a positive factor for the euro, which would be reflected in the "exit" of the major currency pair above 1,0930 and "attack on 1,10.

In turn, today's US PMIs may reflect the first signs of a slowdown in the US economy, even though it was in good shape in QXNUMX. The same may be true for durable goods orders, as well as household income and spending on Thursday.

The market is turning more and more attention to the US economic data to see if its expectations of only 25 bp next week and rate cuts at the end of the year are justified - especially as the Fed meeting is now banned due to the "blackout" period issue any member statements FOMC. If the PCE indicator due on Friday also eases more than expected, the market is likely to feel even more solidified in its theory.

Source: Łukasz Zembik, OANDA TMS Brokers