The Euro (EUR) remains on the defensive against the US Dollar (USD), forcing EUR/USD to retreat further and print new weekly lows in the 1.0660 zone, where some initial contention emerged so far on Wednesday. On the other hand, the Greenback gains further strength, encouraging the USD Index (DXY) to trade at shouting distance from the 106.00 barrier on the back of persistent weakness in the overall risk environment and mixed performance in US yields across the curve. In terms of monetary policy, there is a growing consensus among market participants that the Federal Reserve (Fed) is likely to keep its current monetary stance unchanged for the time being. The possibility of an interest rate adjustment in December has lost some momentum, especially after the recent FOMC meeting and the release of weaker-than-expected Nonfarm Payrolls data for October (+150K jobs).
A similar sentiment can be observed regarding the European Central Bank (ECB), as investors currently lean towards an extended impasse in its tightening measures, most likely until the latter part of next year. On the Euro’s calendar, the final inflation rate in Germany showed CPI rising 3.8% YoY in October and coming in flat on a monthly basis. In the euro region, Retail Sales contracted 0.3% MoM in September and 2.9% over the last twelve months. Across the pond, usual Mortgage Applications measured by MBA are due seconded by Wholesale Inventories. In addition, investors are expected to closely follow the speech by Chair Jerome Powell, especially amidst growing chatter about potential rate cuts by the Fed as soon as in the summer of 2024 vs. the persevering tighter-for-longer narrative seen in some Fed speakers. Later in the session, NY Fed John Williams (permanent voter, centrist), FOMC Governor Michael Barr (permanent voter, centrist) and FOMC Governor Philip Jefferson (permanent voter, centrist) area all expected to speak as well.
EUR/USD corrects lower and revisits the sub-1.0700 zone on Tuesday. The continuation of the selling pressure could force EUR/USD to initially revisit the weekly low of 1.0495 (October 13), ahead of the 2023 bottom at 1.0448 (October 15) and the round number of 1.0400. On the upside, the immediate resistance emerges at the November high of 1.0754 (November 6) prior to the key 200-day SMA at 1.0802 and another weekly top of 1.0945 (August 30). North from here aligns the psychological threshold of 1.1000 before the August peak of 1.1064 (August 10) and the weekly high of 1.1149 (July 27), all preceding the 2023 top of 1.1275 (July 18). So far, the pair’s outlook is expected to remain bearish as long as it trades below the 200-day SMA.