EUR/USD flirts with 1.1300 amid cautious mood
EUR/USD is battling 1.1300 amid a cautious mood. US Treasury yields drop, capping the US dollar’s upside amid covid concerns and Fed speculation. France reports the world’s biggest daily jump in covid infections. Second-tier US data awaited amid light trading.
EUR/USD keeps the previous day’s downside break of a one-week-old support line amid sluggish Momentum. That said, 200-SMA and 100-SMA restrict the pair’s short-term downside around 1.1300 and 1.1295 respectively. During the quote’s weakness past 1.1295, the 61.8% Fibonacci retracement of late November’s upside, around 1.1260, can offer an intermediate halt before directing EUR/USD sellers towards the monthly horizontal support zone near 1.1230.
On the contrary, an upside break of the previous support line near 1.1330 needs validation from the monthly descending trend line close to 1.1345 before recalling the bulls.
Fundamental Overview
| GMT | Event | Vol. | Actual | Consensus | Previous |
|---|---|---|---|---|---|
| TUESDAY, DEC 28 | |||||
| 16:30 | USD 52-Week Bill Auction | 0.39% | 0.24% | ||
| 18:00 | USD 5-Year Note Auction | 1.263% | 1.319% | ||
| 21:30 | USD API Weekly Crude Oil Stock | -3.09M | -3.67M | ||
| WEDNESDAY, DEC 29 | |||||
| 09:00 | EUR Private Loans (YoY) | 4.2% | 4.1% | ||
| 09:00 | EUR M3 Money Supply (3m) | 7.7% | |||
| 09:00 | EUR M3 Money Supply (YoY) | 7.6% | 7.7% | ||
| 09:00 | CHF ZEW Survey – Expectations | -10.8 | |||
| 12:00 | USD MBA Mortgage Applications | -0.6% | |||
| 13:30 | USD Wholesale Inventories | 1.3% | 2.3% | ||
| 13:30 | USD Goods Trade Balance | $-83.2B |
The contrasting moves of the US and EU bond traders could be linked to the ECB v/s Fed battle. Given the recent jump in the US inflation expectations, the Fed is expected to announce the much-awaited rate hike earlier in 2022 versus the ECB’s likely delay in the monetary policy tightening. That said, the US inflation expectations data, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED), stayed near the three-week high of 2.50% at the latest.
France reported the world’s biggest-ever daily jump in COVID-19 infections with 179,807 new confirmed cases while covid figures from New Zealand and China have been easing of late. The UK also marked a fresh all-time high of the daily virus cases with above 122,000 figures while Reuters said, “The average number of new COVID-19 cases in the United States has risen 55% to over 205,000 per day over the last seven days.” Additionally, Australia’s most populous state New South Wales (NSW) reports doubling of the covid infections for Tuesday, with 11,201 new infections and three virus-led deaths.
It’s worth noting that the mixed US data and the year-end holiday mood also challenge the EUR/USD traders. On Tuesday, the US Housing Price Index eased below 1.2% forecast to 1.1% in October while S&P/Case-Shiller Home Price Indices stepped back from 19.5% prior to 18.4%, versus 18.5% market consensus. However, the Richmond Fed Manufacturing Index for December crossed the upwardly revised 12.00 figure with 16.00%.
Looking forward, the current risk-off mood, as portrayed by downbeat yields and stock futures, is likely to keep exerting downside pressure on the EUR/USD prices. However, a lack of liquidity and hopes of fewer hospitalizations due to Omicron, the South African COVID-19 variant, may restrict the short-term downside of the pair.
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