A daily digest of market moves: USD gains on cautious market
The EUR/USD has dipped slightly from its recent high of around 1.1550, trading at 1.1535 during early European trading on Friday. Over the course of the week, the currency pair has remained relatively stable despite experiencing some volatility; mixed data from the euro zone and interruptions in U.S. economic statistics seem to have left investors unsure about the future.
On Friday, the U.S. Dollar Index (DXY), which gauges the dollar against a set of six major currencies, increased as traders expressed caution in light of another downturn on Wall Street the previous day. The worries about a potential AI bubble negatively impacted tech stocks, leading to a wave of risk aversion that has bolstered the dollar across Asian markets.
The private jobs report released on Thursday indicated a decline in net employment in the U.S. for October, which tempered some of the optimism that followed Wednesday’s ADP employment figures. This downturn raised hopes for a possible interest rate cut by the Federal Reserve in December, contributing to a broader reduction in the dollar from its recent three-month peak.
As for Friday’s agenda, the focus will be on remarks from officials at the European Central Bank (ECB) and the Federal Reserve, while the ongoing U.S. government shutdown has postponed the all-important nonfarm payrolls report for a second consecutive month.
Investor Concerns
- Investor fears surrounding potential overvaluation related to artificial intelligence are reigniting memories of the dot-com bubble, leading stock markets to experience declines. As official U.S. economic data has been lacking, this somber market sentiment has provided a modicum of support for the U.S. dollar by the end of what has been a tumultuous week.
- According to the Reverio Public Labor Statistics report, net employment saw a decrease of 9,100 individuals in October, with significant losses in the public sector. This decline, combined with rising concerns about future job cuts for cost-saving measures or due to AI, has left many apprehensive.
- These statistics have heightened expectations for a Federal Reserve interest rate cut in December, with the likelihood of a quarter-point decrease increasing from 62% to 67% on Thursday, although still below the 90% chance seen prior to last week’s Federal Reserve meeting.
- Chicago Fed President Austan Goolsby expressed some reluctance regarding further loosening of monetary policy, particularly against the backdrop of the U.S. government shutdown and a lack of critical inflation data.
- On the European front, retail sales unexpectedly declined in September, contradicting the positive sentiment that was buoyed by robust service sector data earlier in the week, posing a challenge for the euro’s recovery.
- Germany’s trade surplus contracted to 15.3 billion euros in September, falling short of the anticipated 16.8 billion euros. This was due to a visible increase in imports despite some growth in exports, as indicated by the data released on Friday.
Technical analysis: EUR/USD remains vulnerable below 1.1550
The EUR/USD’s recovery from a three-month low in the mid-1.1400 range has hit a ceiling about 100 pips above the earlier support zone of 1.1545-1.1550 (seen on October 14 and 30). The broader bearish trend, stemming from the late October high of 1.1670, is still in play.
The sharp rally observed on Thursday suggests that the negative momentum may be easing somewhat. Nevertheless, for euro bulls to gain any solid ground, breaking through the 1.1550 level will be essential to indicate a possible trend reversal and aim for targets around 1.1580 (low from October 22 and 23), leading up to the October 30 high near 1.1635.
Conversely, attempts to move downward appear to be limited to the 1.1530 area, with stronger support anticipated at 1.1500 and around the November 5 lows at 1.1470. The price target based on a broken triangle pattern aligns with the 261.8% Fibonacci retracement from the late October rebound, which sits around 1.1440.
