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EUR/USD at two-month highs after US inflation data

The USD declined broadly as traders took their profits from the recent rally. It looks like the medium-term uptrend might be soon over for the USD.

The EUR/USD pair moved notably higher this week, jumping above the 1.1450 level for the first time since early November as traders sold the greenback following the US CPI report.

Incompetent ECB?

Earlier today, the ECB economic bulletin was released, saying that the exact impact of the Omicron covid variant on the economy is highly uncertain.

Euro area growth is moderating but expected to pick up again firmly this year. Risks to the economic outlook are broadly balanced, the bulleting continued. The impact on the EUR/USD pair was minimal.

Furthermore, European Central Bank (ECB) Vice President Luis de Guindos said on Thursday that the European economy is getting used to the coronavirus, as reported by Reuters. Additionally, he thinks that Perhaps inflation won’t be as transitory as forecast only some months ago.

So for several months, they kept the printing press rumbling, saying that inflation would come down. Now, when every sane person knows it will not come down, they change their narrative, although showing no real action to stop the inflation from rising further.

US inflation coming in hot

From other news, investors focused on yesterday’s CPI numbers. First, the CPI met expectations, printing 7% year-on-year, the highest since June 1982. That was the 19th straight monthly rise in CPI inflation.

At the same time, the core CPI also surged and reached the highest level since February 1991 (printing hotter than expected at +5.5% yearly).

Later in the day, the US PPI is due, expected to show another rise in inflation. The year-on-year gauge is seen rising to 9.8% from 9.6% previously, while the core PPI is forecast to advance from 7.7% to 8.0%. At the same time, monthly changes will likely decrease.

Additionally, initial jobless claims will be released, probably falling to 200,000 from 207,000 previously, while continuing claims are expected to improve notably to 1.733 million.

Lastly, Federal Reserve Governor Lael Brainard is due to testify on the nomination of Vice-Chair of the Federal Reserve Board of Governors before the Senate Banking Committee in Washington DC.

On Friday, US retail sales for December are due, likely showing a slight decline, despite the holiday season. In addition, import/export price indices will also be released, along with the Michigan consumer sentiment index for January. The next target for bulls will likely be at 1.1520. If the euro jumps above that level, the medium-term trend could change to bullish.

Alternatively, the support could be located in the 1.1380 zone. The short-term outlook appears positive as long as the pair trades above it.

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