EUR/USD remains in a trading range. The price has been oscillating quietly within the borders of 1.0580 to 1.0650.
The economic calendar is almost empty on Tuesday. So, traders have to respond to macroeconomic data of secondary importance and comments from ECB policymakers. The December policy meeting of the Bank of Japan ended up with an unexpected decision which also made an immediate effect on EUR/USD. The US dollar strengthened against the euro. After the Japanese regulator had decided to widen the yield range of the benchmark 10-year government bonds, global stock indices incurred heavy losses. Amid growing risk aversion, the US dollar is again winning favor with investors. The catalyst for the roller coaster in the forex market is certainly the yen which has been advancing across the board. However, dollar bulls have managed to assert strength in almost all currency pairs, except for USD/JPY. The greenback strengthened against major rival currencies.
Interestingly, the US dollar was holding the upper hand against the euro for a short while before the opening of the European session. A portion of hawkish remarks from ECB policymakers enabled the euro to rebound to above 1.06. The euro buyers were not confused by the dismal factory inflation data from Germany. The PPI remained in the negative territory in November like in October, having declined to -3.9% on month. The index tumbled deeper than the expected fall to -1.7%. Oddly, the lower-than-expected PPI did not push EUR/USD down. The currency pair is trading to stick to the upper border of the above-said trading range.
Today, market participants absorbed hawkish comments of ECB policymakers, though they contain a touch of hawkishness in the context of the rhetoric expressed by the ECB at the December policy meeting.
Peter Kazimir, the Slovak central bank Governor, stated today that the ECB should tighten its monetary policy at a steady pace. Yesterday, he also made similar comments, saying that the ECB would have to resort to determined actions in the first half of 2023.
Francois Villeroy de Galhau, one of the ECB Governors, made a few comments on economic prospects. In particular, he reckons that the European economy is likely to avoid a tough landing. Besides, he is rather optimistic about France's economic outlook. From his viewpoint, France is going to evade a recession.
Bundesbank President Joachim Nagel also presented his standpoint. In an interview to German periodical Stern, he said that the ECB still has a long path toward its inflation goal. Inflation has been stuck at elevated levels in the EU. Therefore, the policymakers advocates for consistency in further rate hikes.
All in all, nothing new. The ECB representatives expanded on the thesis stated in the ECB policy decision made at the policy meeting in December. Water erodes stones. The repeated hawkish remarks provide the euro with fundamental support. This prevents the euro bears from developing a downward retracement. Currently, the US dollar lacks any fundamental catalysts. In the second half of the day on Tuesday, the US will release economic data of secondary importance: building permits and housing starts.
In my viewpoint, comments from the ECB officials and red-hot macroeconomic data are not able to push EUR/USD beyond the borders of the trading range between 1.0580 and 1.0650. Such borders are conventional. For example, the buyers could grasp momentum and climb to 1.0690, the upper line of the Bollinger bands on the daily chart. Alternatively, the sellers might appear at 1.0510, the lower line of the Bollinger bands on the same timeframe. The thing is that traders find it hard to develop a clear-cut trajectory amid the overall uncertainty about the instrument.
EUR/USD is likely to continue trading within the above-said trading range with highly probable brief pushes up and down beyond these borders before the US PCE prices are published on Thursday. This is a crucial report of the week. According to the consensus, the core PCE prices are expected to decline to 4.6% in November. In this case, the greenback will come under selling pressure. In contrast, if the PCE goes up, the US dollar might perk up, thus giving a helping hand to the euro bears. If the PCE reinforces the greenback, EUR/USD will be able to settle at about 1.05 and also test support at 1.0480 which corresponds to Kijun-sen on the daily chart.
To sum up, until Friday, EUR/USD is likely to hover at around 1.0600, moving away 50-80 pips in both directions.
