EUR/USD PRICE FORECAST:
- EUR/USD Hovers Around the 1.0730 Thanks to Some Early Dollar Index (DXY) Strength.
- Sources Have Suggested the ECB Are Set to Raise their Inflation Outlook for 2024.
- US CPI Data and ECB Rate Decision Could Set the Tone for EURUSD for Q4 of 2023.
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WEEKLY FORECAST: Japanese Yen Selloff Resumes: USD/JPY, EUR/JPY Eye Further Upside
The Euro staged a late recovery yesterday helped by a waning Dollar Index (DXY) as the day progressed. This was compounded by sources who suggest the ECB are about to upgrade their inflation outlook for 2024 to above 3% which saw a hawkish repricing of rate hike expectations from the ECB. This rhetoric has been echoed by comments from European Commission President Ursula Von Der Leyen this morning who stated that returning to the ECB inflation target is to take time.
This morning we are seeing a slight retracement in EURUSD as the Dollar Index (DXY) has started the day on the front foot. Is this drop a precursor for Dollar Weakness later in the day?
ECB RATE HIKE PROJECTIONS AND US CPI DATA
News that the ECB are planning to upgrade rate hike expectations pose a headache from the Central Bank as the Euro Area economy continues to stutter. Yesterday we had ZEW data out with economist particularly concerned about Europe’s most industrialized economy, Germany. The ECB it would seem would like to hike rates tomorrow in what would be a 10th successive rate hike but the worsening economic conditions in the Euro Area pose a challenge. It seems to be 50/50 at this stage whether we get a hike tomorrow with the rise in oil prices likely to factor in as well. The fear might be that persistently high energy prices may eventually bleed into inflation increasing the likelihood of second round inflationary pressures.
The US CPI data is due out later today and will be the last inflation print before next weeks FED Meeting. It's an interesting one with higher energy prices likely to see an uptick in headline inflation which in theory should keep the Dollar bid. Market participants appear convinced that the Federal Reserve will hold rates steady next week with a view to a possible hike in November. Will the resurgence in oil prices also weigh on the FED decision at next week’s meeting?