EUR/USD nears major resistance

The EUR/USD pair moved higher Thursday, and it looks like the short-term bottom is in place at 1.12. The euro appears oversold, likely starting a corrective rally in the following days.

Earlier in the day, European PPI inflation accelerated further to 21.9% year-on-year in October , up from 16.1% in September. The monthly change nearly doubled to 5.4% from 2.8% previously. Additionally, the unemployment rate in the bloc improved a notch to 7.3%.

Later in the day, the usual Thursday’s jobless claims are on the agenda, expected to rise notably.

Macro situation favors USD over EUR

There is still a significant divergence between monetary policies. The Fed is expected to raise rates in June 2022, while the tapering process could run faster, likely boosting the US dollar.

On the other hand, the ECB has repeatedly said that it would not hike rates in 2022, undermining the euro.

Big banks and asset managers are also somewhat divergent in their views and opinions on the pair.

Economists at Westpac expect EUR/USD to retest the 1.1200 level, if not the 1.1050/00 area, saying that this week’s weaker than expected German October retail sales underscores the potentially lower growth path for core Europe into 2022. Should Omicron concerns subside, relative growth and inflation profiles are biased to US and USD outperformance.

However, economists at MUFG Bank expect the euro to rebound modestly vs. the USD later in 2022 as the European Central Bank (ECB) could turn more hawkish next year.

The EUR will be well anchored through to end-Q1 2022. But beyond then, a more dovish Fed failing to deliver on expected rate hikes and building expectations of QE ending in the eurozone that could open up the prospect of ECB hikes in 2023 will allow EUR/USD to grind higher from current cheap levels slowly, they added.

Daily chart starting to look bullish

The EUR/USD pair might have bottomed earlier in November, and bulls are trying to stage a corrective rally. The critical resistance is at the descending trend line, currently near 1.1350 . Once the euro jumps above it, we could see bullish momentum, targeting previous lows near 1.1520.

The MACD indicator has also sent a bullish signal from a profoundly negative zone, reinforcing the upward impetus. Therefore, as long as the euro trades above 1.12, traders might push the pair toward the mentioned 1.1520.

A breakdown below the 1.12 support would likely send the shared currency toward the psychological level of 1.10.

EUR/USD daily chart, Source: Author´s analysis, tradingview.com