The EUR/USD pair is holding onto its gains on Wednesday, trading around 1.1575, though it remains capped below the 1.1600 level. While the European Central Bank’s (ECB) concerns about financial risks have somewhat tempered investor risk appetite, US Dollar rallies are limited as the market awaits the release of crucial US Durable Goods Orders and weekly Jobless Claims figures.
Key Drivers Influencing EUR/USD:
- Weak US Economic Data Fuels Fed Rate Cut Hopes:
- Disappointing Retail Sales: September US Retail Sales grew by only 0.2% (below 0.4% consensus), following a 0.6% August growth (revised down from 0.7%). Excluding autos, sales rose 0.3% (below 0.4% consensus).
- Stable PPI, But Core Eases: The Producer Price Index (PPI) increased 0.3% in September (after an August contraction), with year-on-year inflation holding steady at 2.7%. However, core PPI eased to 2.6% annually (beating 2.7% expectations), suggesting businesses are absorbing costs.
- Deteriorating Consumer Confidence: The Conference Board Consumer Confidence Index fell to a six-month low of 88.7 in November (from 95.5 in October).
- These figures collectively paint a weaker US economic picture, reinforcing market expectations for immediate Fed interest rate cuts in December and consequently putting pressure on the US Dollar. The US Dollar Index has depreciated about 0.6% in the last three days due to lower US Treasury yields and Fed easing hopes.
- Geopolitical Developments and Improved Sentiment:
- Positive news regarding a potential peace plan between the US and Ukraine, with President Trump announcing a “fine-tuned” roadmap and an envoy meeting President Putin, has improved overall market sentiment, providing additional support to the Euro.
- ECB’s Financial Stability Concerns:
- The ECB’s Financial Stability Review highlighted “elevated risks to financial stability in Europe,” noting that high public debt in some countries could strain bond markets. This might temper risk appetite. Later today, ECB board member Philip Lane and President Christine Lagarde are scheduled to address the press.
- Potential Fed Leadership Change:
- Reports suggest Kevin Hassett is a strong candidate to replace Jerome Powell as Fed Chair. Hassett’s known advocacy for lower interest rates to boost growth adds further pressure on the US Dollar due to expectations of a looser future monetary policy.
Upcoming US Data (Wednesday):
- Durable Goods Orders: Expected to have slowed to 0.3% growth in September (from 2.9% in August). Excluding transportation, orders are seen growing at 0.2%.
- Initial Jobless Claims: Expected to rise to 225,000 from 220,000 in the week of November 21.
Technical Analysis: The EUR/USD pair is currently under growing bullish pressure near the 1.1600 level.
EUR/USD bulls have gained control, successfully breaking above the 1.1550 resistance area and are currently testing the 1.1600 level, which continues to hold as resistance.
Momentum Indicators:
- Technical indicators suggest an improving momentum.
- The 4-hour Relative Strength Index (RSI) is approaching overbought conditions but has not yet reached that level.
- The Moving Average Convergence Divergence (MACD) has crossed above its zero line, underscoring improving bullish momentum.
Key Resistance Levels:
- Bulls are currently capped below the significant resistance area above 1.1600, which represents the November 18 and 19 highs.
- Should bulls overcome this, they are likely to encounter further challenge at the top of a descending channel originating from mid-October highs, now located around 1.1625.
- Beyond that, the next resistance levels are the October 28 and 29 highs, near 1.1670.
Key Support Levels:
- On the downside, the prior resistance at 1.1550 (November 21 and 24 highs) is now expected to act as a crucial support level.
- Below this, the 1.1500 psychological level should provide additional support.
- A sustained move below 1.1500 would increase bearish pressure towards the November 5 lows, near 1.1470, and the bottom of the descending channel from early October highs, currently around 1.1425.
