EUR/USD Sees Gains but Remains Below Key Level
The EUR/USD pair is climbing on Wednesday, currently trading at 1.1575, but hasn’t quite breached the 1.1600 mark. Concerns from the European Central Bank (ECB) regarding financial risks have tempered investor enthusiasm, while increasing speculation over a potential interest rate cut by the US Federal Reserve in December has kept any dollar gains in check.
Recent U.S. economic data released on Tuesday painted a less favorable picture, with retail sales for September growing at only 0.2%, falling short of the anticipated 0.4% increase. Additionally, the producer price index continues to rise steadily. Consumer confidence appears to be waning; households are feeling the pinch of rising prices and uncertain job prospects, which collectively bolster market expectations for a Fed rate cut, adding pressure on the dollar.
Moreover, discussions are ongoing between U.S. and Ukrainian officials regarding a peace plan. President Trump mentioned on Tuesday that his initial strategy had been adjusted based on input from both parties, and he plans to send special envoy Steve Witkoff to meet with Russian President Putin next week. This news, coupled with positive remarks from Ukrainian President Zelenskiy, has lifted market sentiment, further benefitting the euro.
Looking ahead, the economic calendar for Wednesday includes U.S. durable goods data and new jobless claims. Following these releases, ECB board member Philippe Lane and President Christine Lagarde are slated to hold a press conference.
Market Trends: Euro Supported by Weakened Dollar
- The euro benefits from a softer dollar as U.S. data raises expectations for a December interest rate cut by the Fed, and hope for a resolution in the ongoing Russia-Ukraine situation enhances market confidence. U.S. Treasury yields have declined, contributing to a 0.6% drop in the dollar index over the last three days.
- On Wednesday, the euro experienced a dip from trading highs after the ECB’s Financial Stability Review warned of “increasing risks to Europe’s financial stability,” noting that high public debt levels could pressure bond markets.
- Retail sales data indicated a modest increase, revealing a 0.2% rise in September compared to a revised 0.6% in August, which was below the consensus expectation of 0.4%. Sales, excluding automobiles, also grew by 0.3%, again below the anticipated 0.4% increase.
- The producer price index climbed 0.3% in September after a slight decline in August. Year-on-year inflation held steady at 2.7%, aligning with market expectations. Core PPI, however, slowed to a 2.6% annualized rate, slightly beating forecasts.
- The Conference Board’s Consumer Confidence Index has fallen to a six-month low of 88.7, from an upwardly revised 95.5, signaling concerns over the U.S. economic outlook and supporting arguments for further monetary easing by the Fed.
- A report from Reuters has suggested that Kevin Hassett, Director of the National Economic Council, is well-positioned to succeed Jerome Powell as Federal Reserve Chair when Powell’s term ends in May. Hassett has been advocating for interest rate cuts, which compounds pressure on the dollar.
- For Wednesday, growth in durable goods orders for September is predicted to slow to 0.3%, down from 2.9% in August. Orders excluding transportation are expected to rise by 0.2% following prior downward revisions.
- New jobless claims in the U.S. are forecasted to increase to 225,000 from 220,000 for the week ending November 21st.
Technical Analysis: EUR/USD Faces Resistance Near 1.1600
The EUR/USD bulls gained momentum after breaking through the 1.1550 resistance level and are now approaching the 1.1600 mark. Technical indicators suggest improving bullish sentiment, with the 4-hour Relative Strength Index (RSI) nearing oversold territory, though it hasn’t reached it yet. The Moving Average Convergence Divergence (MACD) is positioned above the zero line, indicating increasing bullish momentum.
However, bullish movements face resistance just above 1.1600, particularly near the highs of November 18th and 19th. Should they push further, challenges could arise at the October 28th and 29th highs around 1.1670, which marks the upper boundary of the descending channel that began in mid-October.
If the pair retreats, prior resistance at 1.1550 is anticipated to serve as support before the psychological 1.1500 level. Should it drop below that, it could lead to pressure towards the November 5th low around 1.1470 and the bottom of the descending channel near 1.1425.
