EUR/USD oscillates above 1.0650 as trading activity drops amid a festive mood

• EUR/USD has turned directionless above 1.0650 ahead of an extended weekend for New Year celebrations.
• The US Dollar Index has attempted a rebound after dropping to near 103.50.
• An ease in the risk-off mood has also improved the demand for US government bonds.

The EUR/USD pair is displaying back-and-forth moves marginally above 1.0650 in the Asian session. The major currency pair is displaying a sideways auction as investors are restricting themselves from making positions ahead of the extended weekend for New Year celebrations. A decline in trading activity is resulting in confusing price action by different asset classes.

The US Dollar Index has attempted a rebound after dropping to near 103.50, however, the recovery move seems less confident amid a decline in safe-haven’s appeal. Cautiousness in the global market was trimmed on Thursday after S&P500 witnessed value-buying interest by the market participants. At the press time, S&P500 futures are displaying a subdued performance, however, the upside bias is still solid.

An ease in the risk-off mood has also improved the demand for US government bonds. The return on 10-year US Treasury yields dropped to near 3.82% after a four-day bullish move.

CY2022 has been named a year of higher inflation and continuous interest rate hikes by the Federal Reserve (Fed). Fed policymakers worked hard to achieve price stability, however, the achievement of 2% inflation seems far now as the street is seeing an inflation rate well above 3% after QYCY2023.

Economists at TD Securities believe that inflation in the United States will remain well above 3% by the end of Q4 2023. “We look for headline inflation to end the year at a robust 7.1% YoY pace in Q4, but to slow to 3.1% in Q4 2023. We also forecast Core CPI inflation to end the year at a still-high 6.0% but to decelerate to 3.3% in Q4 2023.”

On the Eurozone front, investors are shifting their focus toward preliminary German Harmonized Index of Consumer Prices (HICP) data, which will release on Tuesday. As per the consensus, the headline HICP is expected to extend to 11.8% from the former release of 11.3% on an annual basis. Apart from that, investors will focus on the Unemployment Change, which is expected to surge to 27K against the prior release of 17K.