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EUR/USD analysis, Prices, and Charts

  • The Euro has risen sharply into 2023, extending its runup
  • Hopes that US inflation may be peaking has been a key driver
  • Eurozone interest rates may have much further to rise

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EUR/USD action has been dominated by the ‘USD’ side of the pair for much of this year, to Euro bulls’ advantage. That trend looks set to remain in place Thursday with US inflation data due in the European afternoon likely to top the bill for traders.

The market is hoping for some further relaxation of US price pressures. ‘Core’ inflation is the measure that strips out inevitable volatility from the fuel and food sectors. It’s expected to have hit 5.7% in December, from 6% the month before. That might not be a huge reduction but it would be a step in the right direction for those praying that US interest rates might stop rising soon and that their rise’s impact on the economy will be relatively mild.

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The markets’ current thinking is that there’ll be another quarter-point increase shortly. That would be a modest gain by recent standards and would keep alive hopes that the Federal Reserve could soon ‘pivot’ toward holding or even reducing the cost of borrowing this year.

On the ‘EUR’ side of things, more rate rises are expected from the European Central Bank. With the economy in its charge much closer to the inflationary effects of war in Ukraine, and, perhaps much more vulnerable to recessionary headwinds. The ECB may well glance enviously at the Fed now, but the bottom line is that expectations of future interest rate support will continue to favor the Euro.

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EUR/USD Technical Analysis

There’s been an impressive run of green candlesticks on the EUR/USD daily chart this year, extending the runup from deep below parity which began in September 2022. The pair is now back up to highs not seen since June of last year and, while it may now be vulnerable to some consolidation, doesn’t seem in any danger of a more significant pullback.

EUR/USD Daily Price Chart

Chart Compiled by David Cottle using TradingView

There seems to be a fairly solid band of support at the first Fibonacci retracement of the rise up from September’s lows. That comes in at 1.04938. That’s just about where the market was held on Monday and, while it holds, bulls are likely to retain overall command.

That level was also important at the end of November, which is the last time it was visited. For now, the bull’s first task is to consolidate above the psychologically important round figure of 1.0800. This task is likely to be made tricky by the urge to take profits after a decent run, but, as long as that retracement support holds, it should be achievable.

The 1.07901 level is interesting, having been the high point of last May and the highest level not seen again until this week.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 0% -4% -3%
Weekly -15% 14% 3%

The week’s close could be a highly instructive indicator of near-term bullish appetite. IG’s own sentiment indicators suggest mixed feelings toward the Euro at current levels, with only 32% of respondents bullish.

–By David Cottle for DailyFX

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