EUR/USD closing in most bullish month in 12 years ahead of Eurozone inflation, Federal Reserve talk
- EUR/USD pares the biggest monthly gains since September 2010.
- Recently hawkish comments from Federal Reserve officials underpinned United States Treasury Yields and US Dollar.
- Softer statistics, easing Covid fears from China and looming concerns over Eurozone recession keeps traders on their toes.
- Firmer Eurozone inflation may help EUR/USD to grind but Federal Reserve Chairman Jerome Powell could favor the month-end consolidation.
EUR/USD remains pressured around 1.0330, after printing two-day downtrend, as it prepares for the big day during early Wednesday in Asia. Even so, the major currency pair stays on the way to posting the biggest monthly run-up in 12 years as Federal Reserve’s (Fed) signals for easy rate hikes got appreciation, even if the latest hawkish Fed talks allowed the United States Treasury bond yields and the US Dollar to consolidate monthly losses.
United States Treasury bond yields, US Dollar lick their wounds
US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748% by the end of the North American trading session. The same helped the US Dollar Index (DXY) to print a three-day uptrend around 106.80 even as statistics from the United States weren’t so upbeat. The reason could be linked to the hawkish comments supporting the US Federal Reserve’s steadily high interest rates, even if a mild cut in the aggression is expected.
It’s worth noting, however, that the stated bond yields remain negative on a monthly basis, posting the first monthly loss in four, whereas the US Dollar Index stays on the way to print the biggest monthly loss since September 2010.
That said, New York Federal Reserve Bank President John Williams and St. Louis Fed President James "Jim" Bullard were the latest supporters of higher rates. On the other hand, the US Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).
Optimism surrounding China contrast with fears from Eurozone to weigh on EUR/USD
Easing tensions from China contrasts with looming economic fears from the Eurozone and challenge the EUR/USD buyers of late.
After witnessing a retreat in the daily Covid infections from the record high, Chinese authorities took a sigh of relief and announced multiple measures to ease the strict lockdown in the key areas.
Recently, Bloomberg reported reopening of some city buildings in the greater Zhengzhou region, the home of key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
On the other hand, mixed statistics from Eurozone and comments from the officials failed to push back the chatters surrounding the bloc’s economic slowdown.
That said, Euro area Economic Sentiment Indicator improved to 93.7 in November versus 93.5 expected and 92.7 prior (revised). However, the bloc’s Business Climate gauge eased to 0.54 from 0.74 previous readings while the Consumer Confidence reprinted -23.9 figures for the said month. Further, Germany’s preliminary inflation, as per the Harmonized Index of Consumer Prices (HICP) indicator, eased to 11.3% YoY while matching the market forecasts versus 11.6% prior. Additionally, the inflation as measured by the Consumer Price Index (CPI), declined to 10% YoY during November from 10.4% previous readings. Following the data, Germany’s Economy Minister Robert Habeck said on Tuesday that “We will be and remain a strong land.”
It’s worth mentioning that the bloc is in consultation with the Group of Seven (G7) nations to announce a price cap on Russian Oil exports and teases another round of geopolitical tension with Moscow as Deputy Prime Minister Alexander Novak said on Tuesday that Russia won't supply Oil under price cap in any case. The same could amplify recession concerns in the bloc and can weigh on the regional currency even if the European Central Bank (ECB) officials appear hawkish. Recently, European Central Bank (ECB) Vice President Luis de Guindos anticipated a decline in the headline inflation during the first half of the next year while speaking at a virtual event XIII Encuentro Financiero on Tuesday.
All eyes on Federal Reserve Chairman Jerome Powell
Although a lot is at stake and in the line but market players will pay more attention to the speech from Federal Reserve (Fed) Chairman Jerome Powell, his first public appearance since November Federal Open Market Committee (FOMC) meeting.
Ahead of the meeting, Analysts at the ANZ said, “
EUR/USD technical analysis
EUR/USD bulls faced rejection from a 3.5-month-old ascending resistance line, as well as the 200-Day Moving Average (DMA).
The following pullback took clues from the Moving Average Convergence and Divergence (MACD) indicator and the Relative Strength Index (RSI) line, placed at 14.
The reason could be linked to a bearish divergence on the RSI and an impending bear cross on the MACD. That said, the higher-high on price joins the lower tops on RSI (14) to portray the bearish RSI divergence while the MACD line’s piercing of signal line from below teases bear cross.
As a result, the EUR/USD bears are all set to approach an 11-week-old horizontal support area surrounding 1.0220-200. However, the quote’s further downside need validation from October peak near 1.0095 before directing the sellers towards July’s low of 0.9952.
Alternatively, the 200-DMA and an upward-sloping resistance line from August 10, respectively near 1.0380 and 1.0510, could restrict immediate upside of the EUR/USD pair.
Following that, the 61.8% Fibonacci retracement level of the EUR/USD’s south-run trajectory from late March to September 28, close to 1.0555, will precede the June 27 swing high near 1.0615 to challenge the pair buyers.
Overall, EUR/USD bulls run out of steam as traders await the key events.
EUR/USD: Daily chart
Trend: Further downside expected