The euro has been weak on Tuesday, despite trying to rally right at the open. The CPI numbers in America only added to the pressure, as it looks like the Fed will have to remain tighter for longer.
EUR/USD
The euro initially did try to rally against the U.S. dollar during early trading on Tuesday, but has since fallen, exacerbated by the hotter-than-anticipated CPI figures coming out of the United States. With the CPI figures 0.1% higher than anticipated in both the core and regular CPI readings, this adds further pressure on the Federal Reserve to keep monetary policy somewhat restrictive.
The ECB, on the other hand, has been very noncommittal about its monetary policy and does not look ready to tighten, at least not quite yet. Beyond that, you have to worry about energy in the European Union this winter. That is still a very valid concern, and if that is going to be the case, the European economy is not going to be doing well, and that could cause the ECB to loosen policy.
The market has been consolidating between 1.1250 and 1.11
Regardless, the Americans continue to see plenty of inflation. There are plenty of headwinds out there to growth in general, and a lot of people are taking advantage of those positive real yields coming out of the United States, so it all adds up for a pro-U.S. dollar story on the margins.
The market has been consolidating between 1.1250 and 1.11, and I think that probably continues to be the case. Eventually, we will break out of this sideways directional box, and with that being the case, I think it gives us the next clear sign.
Rallies at this point in time, I still do not trust. It is really not until we break above 1.1350 that I would look at this as a market that I would want to buy. I think it is probably just as likely, if not more, that we reach 1.10.
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