The EUR/USD pair stayed within the range of the 9th figure after Friday's surge. This is a significant event, as after such impulsive movements, a corrective pullback usually follows. However, not only have the bulls managed to hold on to their positions but the price also continues to move upward, setting a local high at 1.0941 (August 30 peak). The bullish bias remains intact, mainly due to the USD's broad weakness – the US Dollar Index fell to 103.35 on Monday, thereby updating a 2.5-month low. The greenback is declining against the backdrop of an almost empty economic calendar, following the momentum of Friday's trading. Last week's inflation reports still echo among dollar bulls. The market's hawkish expectations have noticeably weakened, turning the dollar into a "whipping boy" in all major pairs of the major group.
However, to be fair, we have to take note of the fact that the euro is gradually gaining momentum against the backdrop of hawkish statements from some of the European Central Bank representatives (pay attention to the dynamics of some cross pairs, especially EUR/GBP and EUR/CHF). For instance, Governing Council member and head of the National Bank of Belgium Pierre Wunsch said that the ECB may have to raise borrowing costs again if investor bets on monetary loosening undermine the institution's policy stance. While Wunsch clarified that rates should stay unchanged at December and January meetings, he did not rule out hawkish decisions in the future. Moreover, he warned that bets on rate cuts risk prompting rate hikes instead.
Wunsch's colleague, Robert Holzmann, the head of the Austrian central bank, was even more explicit as he said on Friday, "we stand ready to raise rates again if necessary". He hinted that such a decision would be made at the next meeting ("anything can happen in the December meeting"). He argued that the second quarter was simply too soon for a rate cut ("We are trying to communicate (to the markets): please do not believe that this is the end of the story").
Another ECB representative, Martins Kazaks, who heads the Latvian central bank, also unexpectedly toughened his rhetoric, noting that it is too soon to say that terminal rate has been reached, given the ongoing inflation risks.
Other ECB members who voiced their position over the past two weeks either avoided discussing the further prospects of monetary policy or did not rule out any scenarios (for example, ECB Vice President Luis de Guindos), thereby allowing for hawkish decisions.
Here, it is necessary to recall that the latest eurozone inflation report was not on the euro's side, especially the Consumer Price Index (CPI). Despite the forecasted decline to 3.1% on an annual basis, the CPI plummeted to 2.9% in October (compared to 4.3% in September). This is the slowest pace of growth since July 2021. The core Consumer Price Index predictably dropped to 4.2% (the lowest value since August 2022).
As we can see, despite such a pronounced downward trend, several ECB Governing Council members have maintained a hawkish stance, allowing for further tightening of monetary policy. This suggests that if November inflation (the value of which we will find out in early December) reflects a slower decline or (even more so) an acceleration, hawkish sentiments at the ECB will strengthen, and the likelihood of a rate hike at one of the upcoming ECB meetings will increase.
Undoubtedly, the EUR/USD pair's current growth is primarily due to the greenback's weakness, which cannot recover after last week's key releases. In fact, the market odds of a rate hike by the following meeting in December is currently 0.2% and for the January meeting, it is 2.1% (according to CME FedWatch Tool). Meanwhile, markets are now attempting to determine when the Fed may begin to cut rates and are currently pricing in a greater than 50% chance of a cut of at least 25 basis points by May. Such market sentiments are weighing on the greenback, preventing EUR/USD bears from organizing even a minor correction.
Furthermore, the euro is providing extra support to EUR/USD buyers, thanks to the more hawkish rhetoric from some of the ECB officials. If ECB President Christine Lagarde, who is on the calendar to speak on Tuesday, November 21, joins the "hawkish chorus," the uptrend will receive another boost, allowing the pair to test the 1.10 level.
From a technical perspective, on the daily chart, the EUR/USD pair is in between the middle and upper lines of the Bollinger Bands, as well as above all the lines of the Ichimoku indicator, which demonstrates a bullish "Parade of Lines" signal. This indicates a preference for long positions. However, at the moment, the bulls have already reached their ceiling – the pair is trying (but so far it has failed) to surpass the resistance level at 1.0950 (upper Bollinger Bands line on the daily chart) to target the 1.10 level. Considering the fruitless attempts, it's not advisable to rush with long positions – making relevant decisions either on bearish pullbacks (with 1.0950 as the target) or after the bulls overcome this price barrier (with the next target quite close at 1.1000).