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EUR/USD comes under pressure, still above 1.1300

  • Sellers seem to have returned and drag EUR/USD ack to 1.1300.
  • Higher yields, omicron concerns, Powell support the dollar.
  • Germany’s Retail Sales contracted 0.3% MoM, 2.9% YoY in October.

The improved sentiment in the greenback drags EUR/USD once again to the 1.1300 neighbourhood on Wednesday.

EUR/USD focuses on Powell, US data

EUR/USD keeps the choppy performance so far this week, with gains limited around the 1.1380 region (November 30) after bouncing off last week’s new cycle lows around 1.1186 (November 24).

The better tone in the greenback comes on the back of the recovery in US yields along the curve while the hawkish message from Chief Powell at his testimony before the Senate on Tuesday also added to the dollar’s rebound.

It is worth recalling that Powell said the Fed will discuss increasing the tapering pace at the December meeting, while he now poured doubts over the transitory stance of the current elevated inflation.

In the meantime, fresh concerns over the omicron variant, the rapid increase of COVID cases around the world and the likeliness of lockdown measures in many economies continue to cloud the near-term outlook for the European currency.

In the domestic calendar, Retail Sales in Germany contracted at a monthly 0.3% in October and 2.9% from a year earlier. Still in Germany, the final Manufacturing PMI came in at 57.4, while the same gauge in the broader Euroland was 58.4.

Across the Atlantic, Mortgage Applications measured by MBA are due seconded by the ADP report, the final Markit’s Manufacturing PMI and the always relevant ISM Manufacturing. In addition, Chief Powell will testify once again and Treasury Secretary J.Yellen is due to speak.

What to look for around EUR

EUR/USD manages well to keep the trade above the 1.1300 mark amidst an erratic week so far. The corrective downside in the greenback propped up the recent move higher in spot, although this is regarded as temporary. Fresh coronavirus concerns sparked after the new variant omicron was discovered last week is likely to keep the demand for the safe haven on the raise at least in the very near term. In the meantime, the outlook for the European currency remains well into the bearish territory on the back of the ECB-Fed policy divergence, increasing COVID-19 cases in Europe as well as some loss of momentum in the economic recovery in the euro area, as per some weakness observed in key fundamentals.

Key events in the euro area this week: German Retail Sales, EMU/Germany Final Manufacturing PMIs (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMIs, ECB’s Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Increasing likelihood that elevated inflation could last longer. Pick-up in the political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary on the rule of law. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is retreating 0.08% at 1.1328 and faces the next up barrier at 1.1382 (weekly high November 30) followed by 1.1464 (weekly high Nov.15) and finally 1.1535 (55-day SMA). On the other hand, a break below 1.1186 (2021 low Nov.24) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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