At the start of the new trading week, the US dollar index showed positive dynamics again, reflecting the increased investor interest in the US dollar. The indicated currency dominates in one way or another in almost all dollar pairs. However, Friday's impulse has disappeared – the currency market is moving by the inertia of recent events. The pre-holiday period is incoming, which is traditionally characterized by low liquidity and weakness. Therefore, the market is gradually falling into pre-holiday minimal activity. During the period of Catholic Christmas, when the main trading floors of the world are closed, traders focus their attention on secondary fundamental factors or related topics that are hypothetical in nature. The narrow market is particularly sensitive, so unusual price fluctuations cannot be excluded, especially against the background of an almost empty economic calendar.
Nevertheless, the current week (as opposed to the next one) can boast quite important macroeconomic reports especially in the context of the EUR/USD pair.
As an example, the German producer price index will be published during the European session today, Monday. The monthly report of the Bundesbank will also be released, but it can only affect the dynamics of the pair if the rhetoric of the members of the German regulator is very different from the previous rhetoric of the ECB members. In addition, it should be noted that the President of the German Central Bank Jens Weidmann resigns on December 31 – five years ahead of schedule. He is consistently "hawkish", but amid Angela Merkel's departure from the political Olympus, he also decided to leave his post. The new head of the Bundesbank will be announced on December 22.
On Tuesday, December 21, an indicator of consumer confidence will be published in Europe, based on a survey of households about the level of confidence in the current state of the economy. For the last two years, this indicator has been in the negative area. In December, it should reach -8 points, reflecting the general pessimism of Europeans: this is the worst result since April of this year.
On Wednesday, December 22, the third estimate of US GDP growth for the third quarter will be published during the American session. This should not be surprising, as the final estimate should coincide with the second estimate (2.1% increase). Traders are likely to ignore this release. However, the indicator of American consumer confidence can provoke certain volatility. This indicator has fluctuated in the range of 109-111 points since September this year. After a slight decline in November (109.5), it should grow slightly this month but remain within the specified range (110.5). But if this indicator is released in the green zone, the US dollar will receive significant support, especially in light of inflationary expectations.
The most interesting day of the week promises to be Thursday (December 23). All traders' attention will be focused on the Core PCE Price Index, which measures the core level of spending and influences the dynamics of US inflation. It is believed that this indicator is monitored by the members of the regulator very carefully. In October, it increased to 4.1% (in annual terms). According to forecasts, the index will show strong results again in November. It is expected to surge to 4.5% in annual terms. This is the strongest growth rate since 1989. This indicator could have a significant impact on the position of the US currency, especially after the latest inflationary release, which reflected a record rise in the consumer price index. PCE Price Index could provoke strong volatility in favor of the US dollar.
During the same day, the growth rate of initial applications for unemployment benefits will be published. This data has been at the pre-crisis level since mid-November, fluctuating in the range of 195-230 thousand. This week, the indicator should reach the 200,000 mark. This result will provide indirect support to the US currency.
Another important release on Thursday is a report on the volume of orders for long-term goods. Positive dynamics are also expected here: the total volume of orders should grow by 1.5% (after a two-month stay in the negative area), and by 0.6% excluding transport.
On Friday, December 24, European and American trading platforms will be closed – Christmas Eve. This day falls out of the working schedule. There will be certain news from Japan, but they usually do not have a significant impact on the market and even more so on the dynamics of the EUR/USD pair.
In general, it is highly possible that there will be complete silence in the currency market in the coming days unless the financial world is shaken by some force majeure factor (for example, the extremely negative conclusions of WHO regarding Omicron). The key central banks have already issued their verdicts. The latest key macroeconomic indicators (in the field of the labor market and inflation) have also already been published. Therefore, traders have received a sufficient amount of information to reflect.
In my opinion, the US dollar is still in a more advantageous position relative to the euro. Over the past few weeks, EUR/USD traders have been looking back at the ECB, whose representatives urged their colleagues to react to the record increase in inflation in the eurozone. A certain informational illusion was created that the European Central Bank would follow in the footsteps of the Fed. However, all the "hawkishness" of the ECB was expressed in the "strengthening" of the APP program and a wait-and-see position regarding the rate, whereas on the side of the US currency, there is a rather aggressive behavior of the Fed. An example of this is the early curtailment of QE and a "hawkish" point forecast.
This uncorrelation will act as a driver for the EUR/USD pair. Therefore, we can still consider sales on upward surges. The resistance level is 1.1290 (the average line of the Bollinger Bands indicator on the daily chart, coinciding with the Tenkan-sen line). The nearest support level (the downward target) is the level of 1.1200, which corresponds to the lower line of the Bollinger Bands on the same timeframe.