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  • EUR/USD is extending the downside in North American trade with markets returned after the Thanksgiving holidays and traders preparing for a busy week and month ahead with plenty of risks to weigh up.
  • The Greenback is firmer on Monday set on a test of the 97 handle again, (61.8% Fibo at 97.06), while now trading above the 21-D SMA and the proximity of the 50% Fibo retracement of the latest swing high and Nov 20th lows at around 96.80.  

EUR/USD is currently trading at 1.1344, down from the day’s high of 1.1383, weighed by poor EZ data and Draghi’s downbeat assessment of global trade/growth, currently breaking below the European session low of 1.1343.  

EUR/USD price action

EUR/USD has completed a round trip since the Europen opening bid from 1.1347 to European session highs up at 1.1383 where supply kicked. There had been a last apparent bid from the bulls around midday London in the 1.1350’s with a spike to 1.1375, but bears were in control and faded the price with momentum taking EUR/USD right into the London fix (16oo GMT) on the back foot.  

EUR/USD fundamentals in play

Firstly, from the data front, a larger than expected fall in German Ifo business climate index, coming in at 102.00 for November, as compared to 102.8 previous and consensus estimates pointing to a reading of 102.3 has pressured the euro.  

This data has followed The German manufacturing PMI decelerating to a 32-month low of 51.6 in November, while services fell to a 6-month low of 53.3. (The composite PMI fell to a 47-month low of 52.2 in November –  The Eurozone manufacturing PMI decelerated to a 30-month low of 51.5 in November, while services fell to a 25-month low of 53.1. The composite PMI fell to a 47-month low of 52.4 in November).  

  • (As for key data events in the week ahead, we have US consumer confidence tomorrow and on Friday, EZ CPI).  

ECB’s Draghi: Headline inflation expected to decline in line with oil price fall

We also heard Draghi explaining that recent economic data have been weaker than expected and even arguing that world trade growth momentum has slowed ‘considerably’. “Significant monetary policy stimulus is still needed,” Draghi said, adding, however, that markets should expect bond buying to end in December. The main takeaway here is that there are headwinds and a more significant storm ahead than where we were at the start of the year which makes navigating the EZ economy harder for the ECB to achieve. The US economy has been growing at a much faster rate and the divergence between the Fed and ECB is apparent as ever, regardless that there are some expectations that the ECB’s bond buying will end in December.

Will have some key speeches from Fed officials this week, including Fed Vice Chair Clarida, whose perceived recent dovishness has arguably been a key driver, alongside oil, in bringing down swap rates who speaks tomorrow at 14:30 CET,  followed by Bostic, Evans, and George. On Wednesday, Fed Chair Powell speaks at 18:00 CET, including a Q&A ahead of the Fed’s last set of minutes, and then on Friday Williams speaks on the global economy.  

Meanwhile, on the political front, a supportive factor for the euro at the start of this week had been on reports that Italy’s government was looking to discuss a lower 2019 budget deficit target to 2-2.1% of GDP, far below the 2.4% and something much more palatable and in line with EU rules. As a result, Italian-German bond yields dropped below 280 basis points and to the lowest level since October 8th; This was offering a temporary boost to the euro – (Brexit has also passed the EU’s approval, but May will face her biggest challenge now trying to get the UK Parliament to approve where it looks impossible considering how many MPs have already said that they will now back the proposals that May has agreed with the EU).  

EUR/USD levels

EUR/USD is oscillating the 21-D SMA at 1.1368, pressured below the 50-D SMA with the price on the defensive and attention reverting to the 1.1300 August and October lows – guarding the 1.1216 the recent low. “While the 1.1216 current November low holds the downside scope for recovery remains longer term, but waning downside risk has increased,” analysts at Commerzbank explained. On the upside, bulls need to get above the November high at 1.1500 although, the 23.6% Fibo at 1.1529 could be a tough area of resistance. A break there could open 1.1581/1.1622 as the 2018 downtrend and 16th October highs.