The EUR/USD currency pair has pulled back from highs above 1.1600, now trading around 1.1560. This shift comes after a mixed bag of data from the euro zone, with traders now anticipating Germany’s upcoming inflation figures. Overall, there’s a prevailing sentiment that the U.S. Federal Reserve may lower interest rates in December, adding pressure to the dollar, yet it still shows a potential 0.5% increase for the week.
Recent euro area statistics tell a complex story. Retail sales in October unexpectedly dipped, while the import price index surpassed expectations. The unemployment rate remained stable despite job creation falling short. Meanwhile, in France, the GDP figures aligned with initial forecasts, but consumer inflation stayed steady, which wasn’t what the markets anticipated, as they expected to see some upward movement in price pressures.
Trading activity was rather quiet on Friday as U.S. markets were operating at reduced capacity due to Thanksgiving festivities. Additionally, a data center outage at CME Group disrupted trading across currency platforms.
As the day progresses, Joachim Nagel, the President of the German Bundesbank and a member of the ECB, might offer further insights on the euro. Interestingly, there’s quite a void in the U.S. economic calendar today, all thanks to the Thanksgiving holiday.
Heightened expectations of Fed rate cuts impact dollar recovery
- The U.S. dollar has seen some strengthening, with Treasury yields recovering slightly, although significant gains seem limited. The dollar index’s (DXY) weekly performance is notably the weakest since July. As many central banks, including the ECB, appear to be nearing the end of their easing cycles, investors are speculating that the Fed might cut rates multiple times within the next year.
- Data from Germany released early Friday indicated that retail consumption shrank by 0.3% in October, which was contrary to market predictions of a 0.2% increase. Year-on-year, retail sales rose by 0.9%, up from a previously adjusted 0.8% in September.
- Following a 1% drop in September, Germany’s import price index decreased by 1.4% in October compared to the previous year, which was better than the expected 1.6% decline. The monthly index also saw an increase of 0.2%, matching September’s pace and defying expectations of remaining flat.
- Data from Destatis showed that net jobs increased by just 1,000 in October, recovering from a 1,000 decrease in September. However, this is still below the market’s expectation of a 5,000 rise, with the unemployment rate holding steady at 6.3%.
- In France, the third quarter’s GDP growth matched preliminary estimates of 0.5%, but the Consumer Price Index (CPI) showed no year-on-year growth, which is surprising as October had been expected to show an increase to 1% from the previous 0.8%.
- The preliminary Harmonized Index of Consumer Prices for Germany, expected later Friday, is predicted to rise to a 2.4% annual rate in November from 2.3% in October, although a monthly contraction of 0.6% is anticipated after a 0.3% increase in October.
Technical Analysis: Bearish Pressure Increasing Towards 1.1550
The EUR/USD exhibit increased bearish pressure during Friday’s European trading session after a rejection at the 1.1600 mark. The 4-hour Relative Strength Index (RSI) is nearing the area below the 50 threshold, while the Moving Average Convergence Divergence (MACD) indicates a bearish trend by staying below the signal line.
A confirmed drop below the previous resistance at 1.1550, which aligns with highs noted on November 21st and 24th, might give sellers the confidence to target the significant level of 1.1500, just ahead of the November 5th low near 1.1470. The channel’s bottom, which is around 1.1420, seems quite distant as a target for upcoming sessions.
If there’s a bullish reversal, breaking through the previously mentioned channel’s upper limit around 1.1615 would confirm a trend reversal, potentially shifting focus to the October 28 high near 1.1670. Beyond that, the next target would be the high from October 17, just shy of 1.1730.
