EUR/USD is settling at levels just above 1.07. But what now? Esther Reichelt, FX Analyst at Commerzbank, points out key data to determine the pair’s next moves.

Arguments supporting a weaker USD medium-term remain in place

“If we obviously haven’t got any idea what is currently happening on the labor market how much more uncertain is the economic outlook likely to be in that case? For now, I expect a much more volatile reaction of the Dollar to data releases.”

“The question of whether continued imbalances will also be reflected in price data such as tomorrow’s University of Michigan inflation expectations or in particular the consumer price data for January next week is to be at the centre of attention. In that case, it should be easy for the Fed hawks to pull the market onto their side. The 1.07 in EUR/USD is clearly not a hard floor.”

“As long as the inflation rate continues to tend downwards, however, the arguments supporting a weaker Dollar medium-term remain in place.”