The EUR/USD dropped by 0.05% as the week began, amidst volatile trading conditions and heightened anticipation of the Federal Reserve’s upcoming monetary policy announcement. The strength of the U.S. dollar is influencing this shift. At the moment, the pair is positioned at 1.1637, having previously peaked at 1.1672 earlier in the day.
Euro Pressured Despite Mixed U.S. Sentiment Reports and ECB Insights
Chairman Jerome Powell is expected to announce a 25 basis point interest rate cut on Wednesday—something the market seems to have already factored in. Traders appear cautious about liquidity. Meanwhile, U.S. Treasury yields are trending upwards as investors anticipate a rise in the neutral federal funds rate. This comes after recent data indicated U.S. inflation has leveled off but is still around 3%.
Interestingly, a recent Consumer Expectations Survey from the New York Fed revealed a growing pessimism among households regarding both current and future financial circumstances.
Despite these factors, the euro seemed to overlook them, especially after ECB board member Isabel Schnabel expressed confidence that rates would rise next. On the data front, German industrial production showed improvement in October, and investor confidence has risen in December according to Sentix.
Looking ahead to Tuesday, U.S. data will include the four-week average of ADP employment changes and the JOLTS job openings for October. In the Eurozone, the focus will likely be on Germany’s trade balance for December, along with remarks from ECB’s Joachim Nagel.
Market Movements: Schnabel’s Remarks Bolstering Euro
- The New York Fed’s November survey indicated a growing pessimism among households, yet inflation expectations remain stable, with a median annual inflation rate of 3.2%, consistently above 3% over a three to five-year horizon.
- The survey also pointed out a “significant deterioration” in financial situations and worsening perceptions of credit access compared to last year.
- In Germany, industrial production rose by 1.1% to 1.8% month-on-month, surpassing forecasts of a -0.4% decline. Sentix Investor Confidence improved from -6.2 to -7.4 in November.
- ECB’s Schnabel mentioned her agreement with the swaps market concerning potential leadership after Lagarde. She believes that, despite some challenges, the eurozone economy has potential for growth. While inflation is manageable at 2%, fluctuations in energy prices and base effects could lead to upward pressure.
- President Rehm of the ECB stated there’s a need to address both upside and downside risks regarding inflation.
Technical Analysis: EUR/USD Dips Below 1.1650, Eyeing 1.1600
The EUR/USD pair has remained below 1.1650 for five consecutive sessions, establishing a tight range between this level and 1.1600. The sideways movement of the Relative Strength Index (RSI) indicates sellers dominating, as buyers struggle to push above 1.1700, which could lead to a retest of the higher threshold of 1.1800 and even the year-to-date peak at 1.1918.
The first level of support for the euro lies just beneath 1.1650, at the 50-day simple moving average (SMA) around 1.1605. Should this support falter, the next SMA at 20-day, which stands at 1.1596, will be a key point, followed by the psychological marker of 1.1500.
