China weighs EUR/USD at the start of a high-risk week

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The week starts in negative territory for the pairEUR/USD, which last night opened lower, extending its fall to record lows of 1.0340, due to the generalized aversion to risk assets.

China’s population has clashed with police in several cities, including Beijing and Shanghai, over the weekend as widespread discontent with the Zero-Covid policy peaked following a deadly fire in western China last week. The clashes also follow the unrest in Zhengzhou over the government’s re-imposition of the city’s lockdown.

The economic agenda of the EUR/USD pair is up this week

In the markets, this situation translates into a desire for caution on the part of investors, which favors assets considered safe havens such as the dollar, hence the current weakness of the EUR/USD.

For the rest of the day, this topic will remain the focus of attention at first, before the focus shifts to the ECB, and to the appearance that Christine Lagarde will offer at 15:00 (CET). Several members of the Fed, including Bullard, will also speak at 18:00 (CET).

However, we will have to wait a few days for the most important events of the week for EUR/USD, especially the preliminary reading of the Eurozone November CPI to be released on Wednesday morning, the PCE price index attached to US household spending (the Fed’s favorite inflation measure) on Thursday, and the U.S. Nonfarm Employment Report for November on Friday.

Check out the full list of statistics that could influence EUR/USD this week in our economic calendar.

Expectations ahead of the next Fed meeting remain key for EUR/USD

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The week will be full of key developments, especially in the United States, which will allow the market to further refine its expectations ahead of the Fed’s next meeting. At the time of writing, the Fed’s Investing.com rate barometer shows a 75.8% probability that the Fed will slow the rate hike to 0.5% in its next decision, which will be announced on December 14.

However, stronger-than-expected US economic data could reduce this probability in favour of a further 0.75% rate hike, which would be positive for the dollar and therefore automatically negative for the EUR/USD pair.

Conversely, a series of negative surprises in this week’s US economic statistics could further boost market certainty that the Fed’s rate hike will slow down, with a bullish impact on EUR/USD.

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