The EURUSD exchange rate broke below the 1.02 level on Monday, setting new multi-month lows just slightly below this threshold. For the past two days, a rebound above 1.03 has been observed, which should currently be treated as a natural corrective upward movement. The strength of the US dollar has been exceptionally strong in recent months, but the psychological level of parity will likely pull the exchange rate down in the near future. The distance is small, and it seems that it’s only a matter of time before this key level is reached. The question now is whether the current level of optimism towards the USD can be shaken by last week’s surprisingly strong US job report. Today, the focus is on the US CPI data.
Today, we will get data on US inflation for December. The core inflation rate is expected to rise to 2.9% year-on-year and 0.4% month-on-month, with the core measure stabilizing at 3.3% year-on-year and 0.3% month-on-month. Even if we see a positive surprise (lower readings), it will not change the Federal Reserve’s stance, which, given the resilience of the economy and rising inflation risks due to Trump’s announced tariff campaign, is unlikely to be inclined to lower interest rates this year.
It is clear that the “last mile” in the fight against high inflation is difficult, and it will take a lot of time for the central bank to achieve its goal sustainably. Now, additional elements that were only a hypothetical risk last year (before the elections) are becoming a real threat to monetary policy.
There is little chance that todayâs data will change market expectations, which at this point completely rejects two rate cuts and, day by day, the organic probability of one move in 2025.
Assuming a hypothetical lower reading today, the continuation of the upward, local correction on EUR/USD may last a little longer, potentially resulting in a 1.04 level on the main currency pair. However, the trend is so strong that a reversal would require something more significant at this point (e.g., a series of weaker macro data from the economy). Next week, Donald Trump’s inauguration is scheduled, and the market will enter a period when it will be saying “check” and assessing how many of the new president’s promises will actually be implemented.
Speculative positioning on the USD, according to the CFTC report, shows extreme investor sentiment towards further increases. Some of these long positions may eventually be closed, which could further support the correction on EUR/USD. In the medium term, however, parity is likely to be seen.
Author: Ćukasz Zembik, Oanda TMS
Source: https://ceo.com.pl/sila-dolara-dominuje-na-rynku-walutowym-parytet-z-euro-w-zasiegu-56861