- The US Dollar Index rose to two-week highs despite mixed US data.
- The EUR/USD fell for the fifth consecutive day, to test the 100-day SMA.
- Bearish bias will remain in place while under 1.0915.
The EUR/USD dropped again and extended the correction from above 1.1000, consolidating below the 20-day Simple Moving Average (SMA). This move was driven by a stronger US Dollar, which rose despite mixed US data and lower Treasury yields.
European Central Bank (ECB) Isabel Schnabel stated on Wednesday that inflation is falling more rapidly than expected, indicating that another rate hike is unlikely. Market participants share this view and are now anticipating a rate cut by the March meeting. Eurozone data revealed that the Producer Price Index (PPI) declined by 9.4% in October compared to the previous year, lower than the 12.4% recorded in September. The final release of the Eurozone (EZ) November Service PMIs showed an upward revision. A report from the ECB indicated that one-year inflation expectations remained stable at 4.0%. On Thursday, Eurozone retail sales data for October will be released.
The decline in EUR/USD was driven by a stronger US Dollar, despite the larger-than-expected decline in the JOLTs Job Openings, which suggests a more balanced labor market. The ISM Services PMI rose to 52.7 in November, surprising expectations. With inflation slowing down and a less tight labor market, the Federal Reserve (Fed) is perceived to have completed its tightening cycle. Market participants anticipate rate cuts in 2024, although this is not currently suggested by Fed officials. On Wednesday, the ADP Employment Report will be released.
EUR/USD short-term technical outlook
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The EUR/USD found support at the 100-day SMA at 1.0775. The mentioned line is being challenged, and a daily close well below would indicate further weakness. The price is already below the 20 and 200-day SMAs. Technical indicators in the daily chart continue to favor the downside. Below 1.0770, the next critical support stands at 1.0690 (uptrend line, 55-day SMA).
In the 4-hour chart, the pair is moving with a bearish bias. Technical indicators are at oversold levels, suggesting some consolidation ahead before a potential leg lower. The strong negative momentum in the short term is likely to persist while below 1.0850. For a negative short bias to be reversed, the Euro must rise and stay above 1.0915.