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MTrading Team • 2023-11-30

EURUSD stays defensive below 1.1000 as EU/US inflation loom

EURUSD stays defensive below 1.1000 as EU/US inflation loom

The hopes of witnessing lesser economic damage due to the restrictive monetary policies allow market players to remain slightly positive early Thursday. Adding to the cautious optimism are chatters about the end of Fed rate hikes and more stimulus from China and Japan. However, the previous day’s upward revision to the US GDP and cautious mood ahead of the US Core PCE Price Index allows US Dollar bears to take a breather.

With this, the US Dollar Index (DXY) stays defensive at a three-month low, struggling to keep the previous day’s corrective bounce off the three-month low. The same challenges commodities and Antipodeans while allowing EURUSD to retreat from a multi-day high, especially when the Eurozone inflation data is due.

Even so, Crude oil remains firmer ahead of today’s OPEC+ meeting while Gold price retreats from a multi-day high marked the previous day. That said, AUDUSD and USDJPY ignore the US Dollar’s rebound but other majors remain mostly lackluster.

BTCUSD and ETHUSD also remain sidelined as crypto traders struggle between the optimism about the spot ETF approvals and industry versus US SEC tussles.

Following are the latest moves of the key assets:

  • Brent oil rises to a two-week high during a three-day uptrend, mildly bid near $83.40 at the latest.
  • Gold price retreats from a six-month high to $2,045 at the latest, snapping a five-day uptrend of late.
  • USD Index prints minor gains while defending the previous day’s recovery from a three-month low.
  • Wall Street closed mixed while Asia-Pacific stocks edged higher. Further, equities in Europe and the UK begin the day on a positive side.
  • BTCUSD and ETHUSD remain dicey around $37,800 and $2,040 by the press time.
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Cautious mood prevails ahead of key data/events…

The Organisation for Economic Co-operation and Development (OECD) slashed the global growth forecasts to 2.9% for 2023 versus 3.0% previously expected. However, the economies of the UK, China and the US are likely to improve while the estimations for the Eurozone GDP are kept unchanged and Japan’s growth forecasts are cut down during the stated period. Markets took this as a positive sign and favored the riskier assets.

Elsewhere, the US Q3 Gross Domestic Product (GDP) put a floor under the US Dollar as the second estimate figures were revised up to 5.2% Annualized versus the initial forecasts of 4.9%, versus 5.0% market expectations. However, the Preliminary readings of Personal Consumption Expenditure (PCE) Prices for the third quarter (Q3) eased to 2.8% QoQ versus 2.9% expected and prior while the Core PCE also softened to 2.3% from 2.4% market forecasts and previous readings.

With this, the Federal Reserve (Fed) officials failed to push back the policy pivot bias. Firstly, Atlanta Fed President Raphael Bostic criticized tighter monetary policy by saying that it significantly impacted economic activity, as well as expecting the downward trajectory of inflation to continue. Following that, Richmond Fed President Thomas Barkin said that talking about rate cuts is premature whereas Cleveland Fed President Loretta Mester bolstered hopes for policy pivot by saying, “Monetary policy is 'in a good place'.” Additionally, the Fed's Beige Book mentioned that economic activity slowed since the previous report.

Alternatively, the fears about China’s property market escalate after the nation’s Powerlong Real Estate defaulted on its debt payment. Also challenging optimism about the dragon nation are the downbeat prints of China’s official PMIs for November. That said, the headline NBS Manufacturing PMI dropped further below 50.0 level to 49.4 from 49.5, versus 49.7 expected, whereas the Services PMI came in as 50.2 compared to 50.6 previous readings and 51.1 market forecasts. It’s worth noting, however, that the softer data and property sector woes propelled hopes of witnessing more stimulus from Beijing, which in turn allowed Asian markets to remain slightly positive and helped Gold buyers to keep the reins despite lacking upside momentum.

On a separate note, European Central Bank (ECB) Vice President Luis de Guindos said that their (ECB Board’s) objective is to bring inflation back to 2% target, which in turn appears defending the policy hawks and the Euro bulls while exerting downside pressure on the US Dollar. That said, the Eurozone’s final readings of the Consumer Confidence for November reprints -16.9 figure but Economic Confidence improved to 93.8 from 93.7 previously expected.

Furthermore, Bank of England (BoE) Governor Andrew Bailey cited the present potential growth trajectory of the UK is the “worst” he has seen in his career. The policymaker, however, also added, “We are not in a place now to be discussing interest rate cuts.” Alternatively, the UK’s business confidence gauge from Lloyds Bank came in the most optimistic in two years for November, 42 from 39 prior.

Additionally, Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr pushed back the rate cut concerns while citing “still too high” core inflation. On the other hand, Bank of Japan (BoJ) board member Toyoaki Nakamura said that it will be some time before the easy money policy is changed.

  • Strong buy: USDCAD
  • Strong sell: ETHUSD, GBPUSD, Gold
  • Buy: USD Index, Nasdaq, USDJPY

Fed’s favorite inflation gauge, Eurozone HICP in focus

The first readings of the Eurozone Harmonized Index of Consumer Prices (HICP) for November and Core HICP for the said month will initially entertain the EURUSD traders. Following that, the US Core PCE Price Index for October, expected 3.5% YoY versus 3.7% prior, will be crucial to watch for intraday directions as softening inflation will bolster the recent market bias of witnessing the Fed’s policy pivot. Further, a few second-tier US data and the last round of the Fed talks ahead of the pre-Fed blackout are extra directives that should be closely watched.

May the trading luck be with you!