Analysts divided over Euro's direction

The Euro to Dollar exchange rate is set in a constructive technical setup, and a push to 1.10 is being anticipated by some analysts; however, it won't be smooth sailing this week given a number of important U.S. data releases are due, as are Eurozone inflation numbers.

Although Euro-Dollar has pushed higher, momentum appears to be slowing, with last week's 0.22% gain rather overshadowed by the previous week's 2.0% rally.

"EUR/USD could push higher if Eurozone inflation weakens more, since this will likely further raise the appetite for European stocks and provide indirect support to the risk-sensitive euro. Thus, a run towards 1.10 handle on the EUR/USD remains likely," says Fawad Razaqzada, an analyst at City Index.

Analysts from MUFG however are a little more pessimistic on the Euro’s fortunes going forward and believe for now the European currency may have run its course.

“The still weak economic backdrop in the Eurozone and the signs of increased confidence in lowering inflation could see increased ECB easing speculation that lowers yields further in the Eurozone. Political uncertainty and social unrest risks are also rising which combined may act to limit EUR advances from here.”

In the Eurozone, the European Central Bank President Christine Lagarde testifies to the European Parliament's Economic and Monetary Affairs Committee on Monday, which could attract some attention in financial circles.

The most important data release is Eurozone flash CPI inflation for November, due Thursday and expected to show further falls in the headline and core measures to 2.8% and 3.9%, respectively.

Should the data beat expectations, expect the market to reverse some of its bets for ECB rate cuts, which have grown of late and would boost the Euro. But the Eurozone's CPI reporting cycle begins a day before with the release of German state-level figures, which have often set the tone for the market.

Spain, often considered a leading indicator for broader Eurozone inflation trends, also releases figures on Wednesday, which means FX action could commence midweek.

"Given how aggressive market expectations have become, the EUR could benefit from any upside inflation surprises and/or further ECB pushback against rate cut expectations, especially if these help boost its rate appeal," says Valentin Marinov, Chief FX Strategist at Crédit Agricole.

The fundamental outlook rests heavily with the U.S. this week, where a busy calendar should give further signs as to whether or not the economy is cooling sufficiently to meet expectations for U.S rate cuts in 2024.

Rising expectations for such cuts have recently boosted global investor sentiment, simultaneously supporting the pro-risk Pound and undermining the safe-haven Dollar.

Weekly jobless claims on Thursday bear watching as investors will question whether last week's drop was a blip, meaning another surprise undershoot could cause some nerves that support USD.

Personal spending growth is also due on Thursday and is forecast to have eased to 0.2% in October after the substantial 0.7% rise in September.

The Fed’s preferred PCE inflation data is due on Thursday and is likely to mirror the CPI release and show falls in both the headline and core measures to 3.1% and 3.5%, respectively. Also, watch Federal Reserve speakers make their case ahead of the pre-FOMC blackout period. The highlight will, of course, be Fed Chair Jerome Powell, who speaks twice on Friday.

"While the Fed is highly unlikely to change interest rates at its last policy meeting of the year next month, markets will be listening carefully for how strongly policymakers push back against expectations for lower interest rates in 2024," says Hann-Ju Ho, Senior Economist at Lloyds Bank.