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Euro Pauses as US Dollar Underpinned by Fed on Sturdy Data Ahead of EU CPI

Euro, EUR/USD, US Dollar, Federal Reserve, Crude Oil – Talking Points

  • Euro support wilted after US Dollar resumed strengthening
  • Fed reminded markets of their hawkishness after retail sales
  • European CPI lies ahead. Will EUR/USD regain traction?

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The Euro climbed higher on the back of perceptions of the Federal Reserve may not be as aggressive on their rate hike cycle as previously thought. Tuesday saw a soft read on US PPI that followed last week’s CPI missing estimates.

Overnight though, robust US retail sales highlighted the strength of the US consumer despite jumbo rate hikes this year from the Fed. The data showed sales increased 1.3% month-on-month in October rather than 1.0% anticipated and 0.0% prior.

In the North American session, we heard from Fed Board members Mary Daly, John Williams and Chris Waller and they all kept to the hawkish script.

Wall Street was lower in the aftermath as fears returned of a Fed that is prepared to slow down the economy further to rein in inflation.

The price action in Treasuries saw 1- and 2-year bonds add a couple of basis points, but the rest of the curve saw yields drop.

The benchmark 10-year note nudged down to 3.67%, a 6-week low. As a result, the US 2s 10s yield curve spread continued to invert, touching -0.67 bps.

The US Dollar gained against most majors except for the Euro and Sterling going into the New close. The ‘big dollar’ has strengthened across the board going into the European open.

The Aussie Dollar has been a noted underperformer today after it dipped below 67 cents despite solid jobs data. The unemployment rate remains anchored near multi-generational lows at 3.4%.

Crude oil is lower again on demand concerns with China Covid-19 related restrictions being unabated. The WTI futures contract is below US$ 84.50 bbl while the Brent contract is under US$ 92 bbl.

Chinese and Hong Kong equity indices are much lower while Australian and Japanese stock markets are fairly flat.

After Euro-wide CPI today, the US will see data on housing starts, building permits and jobs.

The full economic calendar can be viewed here.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD has climbed above resistance this week as it moved above the upper band of the 21-day simple moving average (SMA) based Bollinger Band.

It closed back inside the band on the New York close yesterday and that might indicate a pause in bullishness or a potential reversal that may unfold.

Support could be at the breakpoints of 1.0340, 1.0198, 1.0094 or 1.0090.

On the topside, resistance might be at the previous peak and breakpoint of 1.0615 and 1.0638 respectively.

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Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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