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04.12.2022 03:55 PM
EUR/USD. Preview of the week: "silence in the air" and a half-empty economic calendar

The euro-dollar pair was "flying" in a 100-point price range on Friday, reacting to contradictory data on the US labor market growth. On the one hand, the NonFarm report did not disappoint: almost all components of the report came out either at the forecasted level or slightly above the forecasts. The only exception was the wage figures, which really surprised dollar bulls. For example, the average hourly earnings growth indicator was up 5.1% year-over-year, instead of the forecasted decline to 4.6%. The indicator had been declining for the past two months, but then went back up in November.

I suppose the wage component pushed the bears to become more active: the pair fell to 1.0440 on Friday, retreating from the daily high by a hundred pips. But the bears couldn't hold their positions at the end of the trading day. Traders came to the conclusion that the NonFarm report will not be able to change the Federal Reserve's position in the context of further fuelling the hawkish mood. By the way, based on Friday's report, the probability of a 50-point rate hike at the December meeting was 78% (according to the CME FedWatch Tool). Accordingly, the 75-point option has only a 22% chance of being realized.

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Actually, the pair finished the trading week at 1.0534 for this reason, aiming for the 5th figure, so to say. The main intrigue of the coming week will be the trivial question: will the bulls be able to settle in this price area or will they aim for the 4-5 figures till the December FOMC meeting?

There are two things to note here. First of all, the economic calendar for the week ahead is very thin (for the EUR/USD pair) - in fact, more or less important reports will only be released on Monday and Friday (the ISM US Service Business Activity Index and the Producer Price Index).

Secondly, all upcoming macroeconomic reports will be released during what is known as the "blackout period". This is when the Fed staff generally do not speak publicly between a week prior to the Saturday preceding a FOMC meeting. Therefore, traders will be left to their own devices - one-on-one with an army of specialized experts and insiders. As a rule, this period is very volatile, but this volatility is not unidirectional, because traders are hesitant to bet on the dollar (or against it) ahead of such an important event. The December FOMC meeting is a kind of the last chord, the most significant event of a fundamental character in this month.

Considering this disposition, we can assume that the pair will soon drift and trade within a wide price range of 1.0400-1.0590, reflecting the current news flow.

As mentioned above, there's not much to see in the economic calendar of the first week of December, if we talk about the EUR/USD pair.

On Monday, the final estimates of November PMIs will be released in Europe. According to forecasts, the final estimates will coincide with the preliminary ones. European Central Bank President Christine Lagarde is also expected to speak tomorrow. She had already stated her stance last week, declaring her "neutrality" so to speak (she supported neither the hawks nor the doves in the context of a slowdown in monetary tightening). The ISM service sector business activity index will be released during Monday's U.S. session. It is quite significant, but especially so in light of the ISM manufacturing index's disappointment. According to preliminary forecasts, the service sector is expected to slip to 53 points. If that is the case, it will be the weakest result of the year (the dollar will be under more pressure).

On Tuesday, Germany will release data on manufacturing orders and the U.S. will release data on the trade balance.

On Wednesday, Germany will release data on industrial production. There will also be final estimates of many reports: European GDP growth (Q3), employment rates in the European region and the cost of labor figure (U.S.). In addition, ECB representative Fabio Panetta will speak on Wednesday.

On Thursday, Lagarde will deliver another speech. However, in this case her speech will be ceremonial - she will give a welcome speech at the opening of the economic forum. Thursday's U.S. session will feature secondary data on the U.S. labor market. We will learn more about the dynamics of the growth of primary (and secondary) applications for unemployment benefits.

Finally, on Friday, the producer price index will be released in the US. As you know, this indicator may be an early signal of a change in inflationary trends or a confirmation of them. According to preliminary forecasts, the indicator is expected to rise 0.1% on a monthly basis (after rising 0.2% in October) and slow down to 7.2% on a yearly basis (after rising 8.0% in October). Excluding food and energy prices, the index could also show a downtrend - both in monthly and annual terms. Such results will disappoint dollar bulls, especially after the release of the core PCE index, whose growth has also slowed.

Overall, the economic calendar in the week ahead is likely to provoke (maintain) increased volatility in the pair, ahead of the December FOMC meeting (December 13-14). But at the same time the aforementioned reports are unlikely to contribute to the price movement both to the upside (in the context of the 6th figure) and to the downside (in the context of the 3-2 figures). I assume that in the medium term, the pair will trade in the range of 1.0400-1.0590 (the Tenkan-sen line is the upper line of the Bollinger Bands on the one-day chart), alternately pushing back against the limits of the range.

Irina Manzenko,
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