European markets are heading for a mixed day, focusing on German inflation

The greenback looked unstoppable earlier this year because investors added bets on inflation and the possibility of a rate hike in the US. There are now a great many people who are turning against it in droves. Former bulls such as JPMorgan Asset Management and Morgan Stanley believe that the era of dollar strength is coming to an end. This is because cooling prices will spur markets to trim their bets on a further tightening of monetary policy from the Federal Reserve. There may be opportunities for the currencies of Europe, Japan, and emerging markets to become more attractive to buyers as a result of that. On Tuesday, the majority of Asian currencies were up sharply from recent losses despite hawkish signals from the Fed, with the market’s attention remaining firmly focused on China’s response to COVID-related protests and the government’s response to them.

EUR/USD

The positive change in risk mood witnessed earlier in the day on Tuesday appears to have helped EUR/USD to cling onto modest gains for the day. During the course of the session, the European Commission will release the findings of its business and consumer sentiment surveys for the Eurozone. As well as this, Germany's Destatis will release its inflation data for November, which is of particular importance. There is a forecast for the Consumer Price Index (CPI) in Germany to ease lower to 10.3% on a yearly basis from 10.4% in October. If the annual CPI continues to rise unexpectedly in November, then the Euro will likely gain strength and vice versa. On Monday, European Central Bank President Christine Lagarde reiterated that in the fight against inflation, interest rates will continue to be the primary tool that they will use to control inflation during her testimony before the European Parliament.

On the US economic docket, we will be seeing the Conference Board's Consumer Confidence Index for November. Although risk perception is likely to remain the main focus for market participants as the market is likely to remain volatile. The US stock index futures are up between 0.3% and 0.6% in the European morning, and if Wall Street is able to post a significant rebound, it may hurt the US Dollar and help lift EUR/USD in the United States.

Dollar index

A drop in the dollar index of 0.4% took place on Tuesday. However, the index stuck above the 106 level, keeping some of the gains made in the previous session. A growing number of market participants are now betting against the dollar on the belief that US inflation has peaked, which means that the Fed will have to hike rates less frequently in the future. As some Fed members have indicated, future rate actions are likely to depend heavily on the inflation rate, which is currently trending higher than the Fed's 2% annual target. There will be a lot of attention paid to Fed Chair Jerome Powell's speech on Wednesday and the critical payroll data on Friday this week.