The euro was among the top performers last week, adding another +1.42% versus the U.S. dollar, with hitting a three-year high this week. The big spark for the euro rally came mid-week when the reveal of the European Central Bank’s December meeting minutes, whose underlying was more hawkish tone than anticipated.
From what we have seen from the daily technical chart, if a few things break right early on in 2018, the ECB has positioned itself as willing to withdraw stimulus faster than what is currently scheduled.
With looking at the 30-minute chart the EUR/USD is struggling in a level that depicted by recent lows and highs, any higher or lower breakouts will likely lead to another obvious trend over the short term. Meanwhile the indicator of MACD shows lower highs with price gains, which can be called a “bearish divergence”, presented by the Relative Strength Index (RSI) as well, probably leading to pullback afterwards.
Figure 1: EURUSD M30
In the coming week, attention will be on the final Euro-Zone CPI reading for December, in what amounts to the final inflation print of 2017 altogether. The final revision could very well be the wrinkle that gives traders pause in their determination to push the Euro higher, even if momentarily. Due in at +1.4% y/y from +1.5% y/y, and at +0.4% m/m from +0.1% m/m, the report doesn’t seem like it’s poised to be fuel for more upside.
But any pause the inflation data give mid-week should be temporary. Market measures of inflation continue to trend higher, and with the 5-year, 5-year inflation swap forwards, one of ECB President Draghi’s preferred gauges of inflation, closing last week at 1.739% – its highest level since February 21, 2017 – the ECB is probably feeling confident about its current trajectory of normalizing policy.
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