Following a rise above 1.1600 on Tuesday, EUR/USD experienced a slight drop on Wednesday, now trading around 1.1670. Investors seem hesitant to take risks during the European Parliament discussions, opting to wait for Congress to finalize a bill aimed at restoring U.S. government funding, along with a new set of official statistics to gauge the nation’s economic health more accurately.
Data released early Wednesday regarding Germany’s Harmonized Consumer Price Index (HICP) confirmed earlier estimates, indicating that consumer inflation has remained steady in October, aligning well with the European Central Bank’s (ECB) target for price stability. Additionally, according to Destatis, there was a monthly increase in the wholesale price index last month. Overall, we are in favor of the central bank’s current monetary policy approach.
Reports from ADP on Tuesday revealed that there was a net loss of 11,250 civilian jobs in the four weeks leading up to October 25. This highlights ongoing concerns regarding the U.S. labor market and could pressure the Federal Reserve to consider lowering borrowing costs further at its upcoming December meeting, impacting the value of the dollar.
On the economic front for Wednesday, remarks from ECB Vice President Luis Deguindos and board member Isabel Schnabel are expected during the European session. Meanwhile, several Fed officials in the U.S. will discuss recent employment reports, potentially shedding more light on the Fed’s interest rate plans.
Daily Digest Market Trends: US dollar weakens due to rising expectations for Fed easing
- Recently, the dollar has shown signs of weakness as investors anticipate that forthcoming U.S. data might compel Fed policymakers to focus more on the labor market at the expense of inflation, advocating for further interest rate reductions in December. The dollar’s fall from last week’s peaks continues, while the euro finds some support amid this trend.
- On Wednesday, inflation figures from Germany indicated a 0.3% rise in the HICP for October and an annual increase of 2.3%, which is slightly below the 2.4% annual inflation reported in September.
- In similar news, Germany’s consumer price index also rose to 0.3% in October from 0.2% in September, though the annual rate slightly decreased from 2.4% to 2.3%.
- Additionally, the wholesale price index in Germany saw a rise of 0.3% in October, an increase from 0.2% in September, surpassing expectations of a mere 0.1% uptick. Year-over-year, it dropped from 1.2% previously to 1.1% this month.
- The four-week trend for U.S. ADP employment changes reflected an average shedding of 11,250 jobs weekly through October 25, which may bolster calls for further rate cuts from the Fed.
- Meanwhile, Germany’s ZEW economic sentiment survey released on Tuesday fell short of market expectations. The sentiment index dropped to 38.5 in November, down from 39.3 in October, contrary to predictions of a rise to 40. Although the current situation improved to -78.7 from -80, it still did not meet the market’s forecast of -77.5.
Technical analysis: EUR/USD approaches trend line resistance at 1.1615
EUR/USD has been on an upward trajectory for five straight days. Technical indicators like the RSI are around 60 and the MACD indicates a positive trend, suggesting that the bulls might challenge the levels above 1.1600.
The price is approaching the upper boundary of a descending channel from early October and is currently positioned around 1.1615, close to previous support levels between 1.1620 and 1.1625. A breakout from these areas will be necessary to shift away from the broader bearish trend and refocus on the highs from October 28th and 29th, around 1.1670.
So far, attempts for a downward movement have been supported above the session low of 1.1575. Further down, EUR/USD may find support between 1.1530 and 1.1540 (in line with the lows of November 7th and 10th) past the psychological limit of 1.1500, while critical support seems likely around the low of 1.1470 from November 5th.
