Euro Capitalized, Broad-Based U.S. Dollar Weakness and Higher Growth Expectations

The previous week ended differently compared to how most economists had expected. The US inflation figures declined at a faster pace than initially expected, which led to a completely different pricing of the US Dollar, equities, and even some commodities. On average, the US Dollar lost approximately 3% of its value, while US Indices gained over 7.5% in most cases. The question likely to be a key theme of the week is whether the market has accurately priced instruments within the market.

However, the assets most volatile are none of the above but within the cryptocurrency market. The digital currency sector came under immense pressure last week, exerted by the situation with the FTX exchange. The total market capitalization saw one of its largest declines, dropping to $871 million. Furthermore, the market share of Bitcoin also dropped from 38.6% to 38.1%.

Crude oil this morning is forming a clear price range between $87.21 and $89.34. The price was supported on Friday after Chinese officials advised they would ease some of their COVID-19-related measures.

Crude oil price chart.

However, buyers are slightly concerned about the resistance level’s proximity. The resistance level was formed on Oct. 27 and Nov. 2. The asset has also formed a clear Head and Shoulder pattern, indicating a potential further decline.

EUR/USD - Technical view

The price of the EUR/USD is trading slightly lower than the market close of Friday but does not show any concrete signs of a correction forming yet.

When looking at the 1-hour timeframe, the asset is trading within a retracement, with the 1.0363 level as an upper breakout level. If the exchange rate declines further to form a larger retracement, traders can use the 1.02980 as a lower breakout level.

EUR/USD price chart.

The main reason for the increase remains the potential alteration in the size and pace of interest rate hikes. Most members of the Federal Open Market Committee have advised that the Federal Reserve will not necessarily pivot but rather simply reduce the size of the rate hike. However, a few members insist that the inflation rate remains too high and the current level should remain at least for another 1-2 months.

The market is mainly pricing in a 50-basis-point hike, but traders should keep in mind that the US will release further employment and CPI figures early next month. This will also influence the decision taken by the committee. If inflation does continue to slow as it had this month, the chances of a lower rate hike will increase.

There is also some positive news from the European Commission and European Central Bank regarding economic growth. Both institutions still believe the block will experience a recession but have advised that recovery and economic growth are likely higher than expected. On Friday, it was advised that the GDP of the whole Eurozone would increase by 3.2% rather than the 2.7% which was previously anticipated.

Nonetheless, many economists, if not most economists, believe the European economy will experience a harsher recession than the US. This week, the market will concentrate on further economic releases scheduled for the US. The US will release its Empire State Manufacturing Index and monthly PPI this afternoon. Investors are also watching the G-20 Summit, including President Biden and General Secretary Xi.