The idea of central bank independence looks good, especially against the background of Turkish President Recep Tayyip Erdogan's interference in his activities and the related currency crisis in the country, but it often comes under a flurry of criticism. If the government and the head of state serve the people, is there a group of people who do not serve him? In practice, the Central Bank acts in tandem with the executive branch, and the Fed sets this example.

After being appointed as the chair and vice-chair of the Federal Reserve, both Jerome Powell and Lael Brainard vowed to U.S. President Joe Biden that they would do their best to fight inflation. They were echoed by a whole chorus of FOMC representatives, and as a result, markets considered the Fed's rhetoric "hawkish" and lowered the EURUSD quotes to the lowest levels since summer 2020.

By the week of November 26, investors realized that "doves" could cry not only in the U.S. but also in Europe and began to take profit on shorts. The pair bounced to the top of the 12th figure, although it still looks overvalued in the medium and long term.

Dynamics of EURUSD and interest rate swap differential

Of course, the acceleration of German inflation to 5% and European inflation to 4.4% may scare many euro bears. Just as the risks of the ECB's "hawkish" rhetoric at the December 2 meeting. Nevertheless, the core CPI in the currency block, according to Bloomberg experts, will grow slightly above the target by 2.2%, which indicates that the main driver of inflation growth is energy prices. If they remain the same as at present, the CPI will begin to slow down in the second half of 2022. And significantly.

The ECB's patience policy is justified and the best thing Christine Lagarde and her colleagues can do in December, is to announce the completion of PEPP in March and an increase in APP purchases by €20 billion per month. The markets know about all this, they are waiting, so it is unlikely that this kind of news can change the trend.

The euro is under pressure from the fourth wave of COVID-19 in Europe and rumors of a new virus strain from South Africa. The deterioration of the epidemiological situation and risk appetite, which is manifested in the fall of world stock indices, is a clear negative for the bulls on EURUSD. This speaks of the limited potential for the correction of the main currency pair.

Dynamics of EURUSD and the ratio of infections in the USA and the Eurozone

It cannot be said that the attention of investors in the week to December 3 will be completely focused on the Eurozone. The release of U.S. employment data for November will be a litmus test of what the Fed will do at its last meeting in 2021. The growth of Nonfarm Payrolls by 563,000 as expected by Bloomberg experts, coupled with the acceleration of average salaries to 5% YoY, are strong arguments in favor of a faster tapering of QE than is currently assumed.

Technically, the rebound from the pivot point at 1.122 allowed the bulls to launch a counterattack. Nevertheless, there is no reason to doubt the strength of the downward trend for EURUSD, therefore unsuccessful assaults of resistances at 1.133 and 1.142 should be used for selling.

EURUSD, Daily chart