12.01.202309:31 Forex Analysis & Reviews: Hot forecast for EUR/USD on 12/01/2023

The market has been stagnating for a couple of days and only the US inflation report, which will be released today, can get it out of this state. As a matter of fact, investors are waiting for it. Especially in the light of Friday statements of representatives of the Federal Reserve, which basically boils down to a slowdown in the growth of interest rates. In principle, the US central bank did not hide the fact that this year it will complete the cycle of rate hikes. And it's clear that before that, from meeting to meeting the growth of interest rates will be reduced. But everyone was shaken by the statement that during the next Federal Open Market Committee meeting the Fed funds rate may be raised by only 25 basis points. This caused the dollar to weaken.

In this regard, inflation forecasts are highly important. The fact is that the main forecast remains unchanged, and the growth rate of consumer prices should slow down from 7.1% to 6.7%. However, judging by the market behavior, as well as the nature of reports, traders might assume that events will develop according to the most optimistic scenario, and inflation will slow down to 6.5%. Such forecasts do exist, but they are not mainstream. And this creates an interesting perspective. Traders may believe in a broader decline in inflation, and when they see a slightly lesser slowdown, sentiment will change dramatically, and the dollar will begin to recoup its losses as investors drastically revise their expectations, and begin to assume a 50-point reduction in the rate is coming instead of 25. That will be the start of the correction. If inflation actually slows down more, then the potential for the euro's further growth is rather limited since it is excessively overbought.

Inflation (United States):

The EURUSD pair, after briefly being stuck in the 1.0710/1.0760 range, has finally crossed its upper limit. As a consequence, the upward cycle continued.

The RSI technical indicator is moving within the overbought zone, indicating that long positions on the euro are way above its intrinsic or fair value. It is worth noting that the lack of a full-size correction in the market suggests that traders are ignoring the technical signs of it being overbought.

On the four-hour and daily charts, the Alligator's MA are headed upwards, which corresponds to the current cycle.

Outlook

Keeping the price above 1.0760 will eventually lead to a breakdown of the subsequent resistance level of 1.0800. In turn, this step allows for the subsequent formation of a medium-term uptrend in the euro.

As for the bearish scenario, traders will consider this option in case of a reversal, with the price moving below 1.0700. In this case, a correction is possible.

In terms of the complex indicator analysis, we see that in the short-term, intraday and medium-term periods, there is still a buy signal because of the upward cycle.