The euro/dollar pair price is unchanged and hovering around the 1.0600 level. Despite the lack of events on the economic calendar today, the current news flow affects buyers and sellers of the EUR/USD. The German IFO indices, for instance, were released in the morning, so Monday's calendar is full. Additionally, representatives of the ECB spoke, including vice president Luis de Guindos and Peter Kazimir, governor of the Central Bank of Slovakia. Because of these fundamental factors, buyers of EUR/USD were able to update the daily high, reaching the 1.0659 level.
Thus, Luis de Guindos expressed hawkish opinions today, saying that the Bank will keep raising interest rates to combat inflation. On the one hand, this is a typical and unremarkable phrase—the meeting of the December ECB's leitmotif, if you will. The regulator, however, has not yet decided where the current cycle of tightening monetary policy will end, according to Guindos. He claimed that while interest rate increases "will certainly be" at the upcoming meetings, the precise magnitude is unknown. The ECB vice president said, "I don't know."
It should be recalled that Christine Lagarde confidently discussed only the February increase after the meeting's results in December. According to her, all subsequent decisions will be made while taking the dynamics of important macroeconomic indicators, particularly inflation. Therefore, trading firms interpreted Guindos' today's remarks in favor of the single currency.
Today, Peter Kazimir, another ECB representative, gave hawkish signals. He claims that the first half of 2023 will require the European Central Bank to take decisive action. He continued that the risks to the European economy are downward, and the risks associated with inflation are upward.
The German IFO indices, which all displayed positive results on Monday, added to the overall picture. For instance, the business environment indicator increased to 88.6 points with a growth estimate of up to 86 points. The IFO's indicator of economic expectations also exhibits an upward trend; in December, it increased to 83.2 from 82.0 in the forecast. The green zone also released the current situation assessment index, which showed the best performance this month since August.
As you can see, today's news and ECB officials' remarks worked in favor of those who bought EUR/USD. But they needed to utilize these important fundamentals to their full potential. The daily high of 1.0659 is a very meager accomplishment. In addition, the pair's bulls could not hold onto their gains as the bears took control, and the price started to sag toward the bottom of the sixth figure.
This suggests that traders have doubts about the likelihood of the northern trend developing. The contradictory outcomes of the December Fed meeting and, in particular, the hawkish remarks made by John Williams, the head of the Federal Reserve Bank of New York (who, among other things, has a permanent vote in the Committee and is regarded as one of the most powerful members of the Federal Reserve), prevent EUR/USD buyers from becoming successful.
Remember that the Fed revised the endpoint of the current cycle of tightening monetary policy upward following the outcomes of the December meeting (the upper limit was raised from the September value of 4.6% to 5.1%). And despite Jerome Powell's somewhat "dovish" remarks (such as the possibility of lowering the peak rate level in the event of weak inflation data), traders ultimately interpreted the outcomes of the December Fed meeting in favor of the dollar. The dynamics of inflationary growth in the US largely determine everything now; if these dynamics continue to be negative, the Fed will implement the "dovish" scenario. But the Central Bank will move at a 50-point pace to the 5.1% level if the inflation indicators are stomping on the spot or start to grow again. Furthermore, the regulator might go beyond this limit based on John Williams' comments. The southern potential of EUR/USD is currently constrained because this hawkish strategy contains too many "buts" and "ifs."
On the eve of an important inflation report that will be released in the United States this Friday, traders, in my opinion, are reluctant to open sizable positions, both in favor of and against the dollar. We're referring to the closely watched basic PCE price index, which Fed officials monitor. Forecasts indicate that the indicator will slow to 4.6% (year over year), maintaining the downward trend. This release will significantly impact the US dollar, which will change the dynamics of the major dollar pairs.
The pair is expected to trade in the 1.0550–1.0650 range before Friday's report (with a potential impulse increase to 1.0680), reflexively responding to the current information flow.