The recent surge in EUR/USD may be a false dawn, driven by hopes of a faster end to European quantitative easing and stabilizing US inflation. While positive German economic sentiment and rumors of an accelerated QE taper offer temporary support, the lack of expected Fed rate cuts in 2024 could ultimately stall the euro’s momentum.

Reasons for skepticism:

• Overoptimistic market expectations: Bank of America predicts that a November CPI close to Bloomberg’s estimates could shift the Fed’s first rate cut to June, halting the US stock rally and boosting the dollar.
• Deliberate market manipulation: Major players might be trapping the crowd into buying euros prematurely, as data releases and QE rumors aren’t strong enough catalysts.
• Continued US inflation slowdown: Only a significantly lower than expected November CPI (around 2.7-2.8%) could ignite a sustained euro rally.
• Continued hawkish Fed: With no expectations of U.S. monetary expansion in 2024, the dollar remains strong.

Medium-term outlook:

• Stock market correction: Rising greed in the market suggests a reckoning is coming, possibly triggered by the Fed halting the S&P 500’s bull run, which could send EUR/USD even lower.
• Fed rate cuts: Despite the delay, the Fed will likely still cut rates in the medium term, putting pressure on the US dollar.

Technical analysis:

• Daily chart: Bulls managed a temporary “inside bar” breakout, but a rebound from 1.081-1.0815 and 1.084 resistance levels should be considered a selling opportunity.
• Buying opportunities: Returning to buying should only be considered if the pair rises above 1.0865.

The recent EUR/USD rally appears fragile and susceptible to correction unless US inflation surprises on the downside. The lack of expected Fed rate cuts in 2024 and potential market manipulation add to the bearish case. Although a medium-term dollar decline remains possible due to eventual Fed rate cuts, a short-term correction in EUR/USD is more likely.