• Friday's data put back on the table central banks' imbalances.
  • EUR/USD decline may extend short-term but bulls to give a good battle next month.

The positive momentum of the common currency diluted as the week went by, with the EUR/USD pair finishing it in the red at around 1.1350. Trading was choppy these last few days, partially due to the US Thanksgiving holidays, and partially due to Brexit headlines keeping investors on their toes on whether the deal will be signed this weekend or not. Seems it could, but we won't find out until Sunday.

The EUR suffered from its own political woes, as tensions between the EU and Italy persists. Just this Friday, Italy's PM Di Maio reiterated that the country is not willing to make changes to key reforms, despite the EU Commission rejected the proposed 2019 budget over excessive spending and menaced the troubled country with sanctions. Italy is the Union's third-biggest economy and also has the largest debt burden after Greece. Financial turmoil could be triggered by the slightest spark and spread through the region.

Macroeconomic data exacerbated the slump at the end of the week, as the preliminary November Markit indexes were a big disappointment. German´s Manufacturing index came in at 51.6, its lowest in 32 months, while the Services one printed 53.3, its lowest in six months, leaving the Composite PMI at 52.2, an almost 4-year low. For the whole Union, business growth was quite similar, with the EU Composite PMI down to 52.4 from 53.1 in October, a 47-month low. According to the official release, the decline was due to a slower order book growth and falling exports that were accompanied by deteriorating optimism about the outlook, as well as rising costs and prices.

And in the middle the ECB. The central bank released the Minutes of its latest meeting, reaffirming its determination to end QE next December but adding that data has been weaker than expected and that there a number of arguments pointing "towards risks to the growth outlook tilting to the downside.” The figures released this Friday, for sure add to the cautious tone of policymakers, and could delay the rate hike expected for the end of 2019.

Dollar gains were a consequence of fears and uncertainty rather than self-strength, as US data disappointed. Durable Goods Orders plunged 4.4% in October, the largest decline in over a year and showing business investment weakness for a third consecutive month. The final reading of the November Michigan Consumer Sentiment indicator resulted at 97.5, down from 98.6 in October. The index, however, held near record highs.

 Closing the macroeconomic calendar, the preliminary Markit indexes for November, showed that the US  private sector posted another robust increase in output, although a loss of momentum for new business growth, with order books improving at the slowest pace since December 2017, overshadowing the final readings, according to the official report. The flash Composite output index resulted at 54.4, down from 54.9 in October and a two-month low.

The upcoming week will start with an EU Summit starting Sunday, in where leaders will supposedly finalize the Brexit deal. There are still multiple doubts and any headline ahead of the opening could result in strong opening gaps one way or the other, depending on whether a deal is signed or not.  Political turmoil will continue overshadowing macroeconomic data, although there are some relevant figures scheduled for the upcoming days, particularly in the US, as the country will unveil October PCE inflation and the second estimate of Q3 GDP. The most relevant reading coming from the EU will be German preliminary November inflation, foreseen steady at 2.4% YoY.

EUR/USD technical outlook

After reaching a fresh yearly low in the previous week at 1.1215, the pair recovered up to 1.1472 at the beginning of the current one.  The weekly chart for the pair shows that it´s battling with the 50% retracement of the mentioned rally, and the weekly chart shows that, while it holds above the 200 SMA, the 20 SMA is crossing below the 100 SMA some 200 pips above the current level. Technical indicators remain within negative ground, the Momentum retreating just modestly from its mid-line, but the RSI hovering near oversold readings, skewing the risk to the downside.

In the daily chart, the pair is below its 20 DMA after spending most of the week above it, still well below bearish 100 and 200 SMA, and with technical indicators accelerating their declines within negative levels, also supporting a bearish extension ahead. The 61.8% retracement of the mentioned rally comes at 1.1310, the immediate support. Below it, the next support comes at 1.1215, the yearly low, followed by the 1.1160 price zone. Above 1.1400, the next resistance is 1.1460 a strong static level, ahead of the 1.1500 figure.

EUR/USD sentiment poll

According to the FXStreet Forecast Poll, bears will lead the way next week, targeting on average the 1.1300 level. For the 1 and 3  months perspectives, however, bulls are over 50%, with the pair seen then above the 1.1400 level. Banks are those betting on higher targets, although in the weekly view, is below the mentioned threshold, while in the quarterly one, the overview chart suggests an increasing bullish potential, as not only the moving average turned higher, but also, the largest accumulation of possible targets is between 1.15 and 1.20.

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