Data on the growth of European inflation came out at the level of forecasts, and retail sales in the eurozone were pleasantly surprised - however, the EUR/USD pair ignored these fundamental factors, yielding to the general strengthening of the US currency. The dollar index "revived" again, rising to the borders of the 97th figure. Against the background of a sudden demand for the greenback, the euro-dollar pair updated the daily low, falling to the level of 1.1165. However, the southern momentum also stalled quite quickly - traders cannot decide on the vector of price movement, given the rather contradictory fundamental picture.
Thus, the European currency received support from macroeconomic reports. The overall consumer price index rose in December, reaching 1.3% from the previous value of 1.0% (the result coincided with the forecast). Core inflation also showed a positive trend - the core index came out at the same level as in November, that is, at the level of 1.3%. This is the strongest growth rate of the indicator over the past six months. By and large, the market was ready for such results, especially after the release of data on the growth of German inflation in December.
But retail sales surprised, being in the "green zone". For two months, this indicator was in the negative area, showing a decrease in consumer activity. In December, experts predicted growth up to 0.6% m/m. However, actual figures exceeded the forecast values every month, consumer prices jumped to 1%, and on an annualized basis - to 2.2% (with growth forecast up to 1.5% y/y). In this context, we are interested in the position of the ECB leadership (especially Christine Lagarde and Luis de Guindos) regarding this inflationary dynamics. The speech of the head of the European Central Bank is not expected this week, but Guindos tomorrow will comment on the situation, speaking at the economic forum. If the essence of his rhetoric will be reduced to maintaining a wait-and-see position (which is most likely), the euro will receive some support.
If we talk about the possible reaction of Lagarde, it is worth recalling the results of the December meeting of the ECB. The head of the European regulator even then said that the downside risks to inflation have become "less significant". Also, Lagarde positively assessed the recent macroeconomic releases - in her opinion, now we can say that in Europe there are "the first signs of slowing down the economy." Given the continued growth of European inflation against the background of the strengthening of the oil market, we can assume that Lagarde will maintain "neutral-positive" rhetoric, thus providing background support for the single currency.
We cannot rule out a more optimistic scenario in which ECB members will consider raising the interest rate at the end of this year. Christine Lagarde may well admit this possibility, especially against the background of the strengthening of the "hawkish wing" of the European Central Bank. It is worth recalling that not everyone in the ECB camp was in favor of further easing of monetary policy. In September, representatives of Germany, France, and Austria, among others, opposed the resumption of QE. Benoit Coeure, a member of the Board of Governors, also spoke out against this idea. The regulator was then able to find the votes to make the decision but in its minimal execution. Today's release will only strengthen the position of the "hawk wing" in the run-up to the first meeting of the ECB this year, which will be held on January 23.
But today, EUR/USD bulls have to reckon with the anti-risk sentiment that still dominates the currency market. And although the influence of the "Iranian question" has somewhat weakened, the geopolitical conflict itself is by no means exhausted. The Iranian Parliament has listed the Pentagon as a terrorist organization, while the secretariat of the Supreme National Security Council of this country has developed 13 options for revenge for the destruction of General Qasem Soleimani by the Americans. Such news puts pressure on the EUR/USD, as the overall demand for the US currency increases.
But while Iran has not moved from words to deeds, the growth of anti-risk sentiment is short-lived. Therefore, the pair's bears today failed to develop a southern momentum, stopping at 1.1165. By and large, the pair was caught in the grip of conflicting fundamental factors: on the one hand - the US-Iran conflict (the strengthening of which may support the dollar), on the other hand - macroeconomic reports, which so far support the European currency. The pair responds impulsively to the contradictory news flow, trading within the 11th figure.
From the technical point of view, the EUR/USD pair is still in an upward trend on the "older" timeframes - H4, D1, and W1. In particular, on the daily chart, the price is located between the middle and upper lines of the Bollinger Bands indicator, which shows an extended channel. The Ichimoku indicator has formed one of its strongest signals - a bullish "Line Parade". Also, the pair is located above the Kumo cloud, which also indicates the north direction of the price. The strongest resistance level is 1.1240 - this is the high of the year (4-month high), which coincides with the upper line of the Bollinger Bands on the daily chart.
