EUR/USD: Break above 1.05 could open the door to an extended rebound up toward 1.08 – MUFG

In recent weeks, EUR/USD has failed to break above the 1.0500 level. A move beyond here would clear the way towards 1.0800, economists at MUFG Bank report.

Inflation close to peaking in eurozone

“The next important resistance level for the pair comes in at the 1.0500 level which has held so far this month. A break above that level could open the door to an extended rebound up towards the late May/early June highs at around the 1.0800 level.”

“The latest eurozone CPI report revealed that headline inflation unexpectedly dropped to 10.0% in November although the core rate held at 5.0%. It has added to optimism that inflation is now in the process of peaking out which alongside much weaker activity data over the winter period should encourage the ECB to adopt a less hawkish policy stance. Nevertheless, a modest dovish repricing of ECB rate expectations is unlikely on its to prevent EUR/USD from continuing to rebound if the broad-based USD sell-off.”

“There is a strong seasonal pattern for the Euro strengthen against the US Dollar in December as well.”