The euro/dollar pair is still trading in the sixth figure and is showing signs of being bearish. The European PMI indices released today, which mostly scored in the green, did not help EUR/USD buyers. When this release occurred, the market reacted impulsively, but the northern impulse almost immediately choked because it attracted sellers. Since many traders are reluctant to open short positions on Friday, this factor "blurs" the overall picture. However, based on the outcomes of the previous two days, some inferences can already be made.
The key findings can be summarized in one sentence: neither the Federal Reserve nor the European Central Bank supported the single currency. Most market participants' expectations still needed to be met, including buyers and sellers of EUR/USD. As a result, neither the pair nor the range of 2-4 figures collapsed into the area of the seventh figure.
On the one hand, the American regulator bowed to the "dovish nature": the Federal Reserve slowed the pace of tightening monetary policy while also making it clear that there was no set trajectory for raising the rate; appropriate decisions would be made from meeting to meeting. On the other hand, the Central Bank updated the current cycle's target and increased the cap to 5.1%. The Central Bank also linked the rate of PEPP tightening to the acceleration or deceleration of inflation. This nuance was initially applied to the US dollar. Then, however, traders realized that such a position has a dual significance. After all, the Fed will automatically revert to the baseline scenario, which assumes an increase in the rate to at least 5.1% if the consumer price index in the United States stays in the same place for the foreseeable future (not to mention the start of growth).
Adding fuel to the fire was Fed representative John Williams, who said today in an interview with Bloomberg TV that the Fed might increase rates "more than predicted on the chart." He continued by saying that he does not believe that a rate on funds "above 6%" is necessary. Additionally, despite being referred to as an "undesirable target," the six percent level was set for the first time following two inflation reports that showed a slowdown in CPI growth in the United States. Williams is regarded as one of the Federal Reserve System's top officials, which needs to be mentioned. Additionally, he has a perpetual right to vote on the Open Market Committee as the president of the Federal Reserve Bank of New York.
Williams' remarks added to the dollar's support, but EUR/USD bears still require a new informational jolt to establish a foothold below the 1.0600 level and start a downward trend.
The pair's circumstances are generally not favorable to the northern trend. The Fed effectively left the situation in limbo by tying the pace (and prospects) of tightening monetary policy to the movements of important macro indicators, primarily inflation. In response, the European Central Bank announced a rate increase of 50 basis points while outlining the timeline (February–March). The ECB intends to raise rates at upcoming meetings, according to the statement that goes along with it. Still, the decision "will depend on the dynamics of inflation and the situation in the economy." Inflation in the eurozone began to slow in November, which should be noted at this point.
The PMI indices released today can also be seen from various perspectives. On the one hand, virtually all indicators in Germany and the entire region of Europe came out in the "green zone" (French indicators disappointed). The manufacturing and service sector indices showed minimal growth and, more importantly, remained below the critical 50-point threshold.
The pair is also under pressure from other factors, including the overbought euro, deteriorating risk sentiment, and repositioning following the Fed and ECB meetings.
Therefore, the pair will be dominated by bearish sentiment in the medium term, making short positions a priority. The 1.0530 level is the southern target that is closest, and clearing it will allow sellers access to the 1.0250–1.0450 price range.
