Hope, Hope, and Hope
Despite the latest encouraging news on the vaccine front, the common currency remained in a range-bound pattern. Daily COVID infection numbers and deaths are surging in many parts of the world, forcing the local government to impose stricter lockdown.
On November 17, Germany reported the highest number of deaths since April. But we think the level of fear about CIVUD-19 is easing.
FX: Supporting USD
EUR: The common currency fell against the major counterparts last week. The pound was the top performed against the EUR with a percent gain. But against the dollar, the common currency remained neutral. So far, buying on dips favors the trend, but due to the given range trading pattern, the A-B-C wave structure, the pattern is limiting the headroom in the coming days—the common currency needs a fresh clue rally more robust. December ECB meeting and timing of EU recovery fund could be the key driver to the EUR.
USD: The dollar is stabilizing at the lower end of the range of 91.70-94.75. Overnight, the dollar index traced out a double bottom between 91.40-91.90 levels. We should expect a minor pullback to 93 and 93.50; it’s 100MA before heading lower.
Macro: EZ and US PMI
The last Eurozone PMIs were mixed and signaling a deep contraction in Q4. In Europe, their preliminary PMIs are signaling a steep downturn there. France and the UK are the main laggards, Germany was slightly positive.
Latest Flash PMI signals a steep downturn in November amid COVID-19 lockdowns. Eurozone services PMI saw a deep contraction, and German PMI drops to a five-month low in November due to the tightening of COVID-19 restrictions. However, the economy remains buoyed by manufacturing, according to the HIS Markit.
Commenting on the flash PMI data, Aline Schuiling at ABN AMRO cited, “Services drag eurozone into a double-dip recession.” On a daily note, Sr. Economist Aline said, “Overall, the PMI report is in line with a deep contraction in eurozone GDP in Q4, as modest growth in manufacturing will be overshadowed by a sharp contraction in services. ”
She highlighted that the EZ is marching towards a double-dip recession. “This is consistent with our baseline for a double-dip recession in the eurozone economy in the current quarter and the first quarter of next year. Looking further forward, our conviction in a sharp rebound in economic growth during the course of 2021 has strengthened in recent weeks. Once immunity is in place for key workers and the vulnerable, we expect a significant lifting of restrictions in Q2 and – especially – in Q3.”
Besides, in the US, flash PMI readings for November have come in much better than expected. Their factory PMI came in at a six-year high, while their services PMI was just as strong. So, the PMI divergence between EZ and the US could cap the common currency in the near term.
Looking ahead, it’s a busy week on the macro side. The 3Q GDP for Germany (Tue) and France (Fri) will grab attention this week.
The German IFO survey is due today. In October, the reading fell from September 93.2 to 92.7. As per the official release, this was the first fall after five consecutive increases. Companies are considerably more skeptical regarding developments over the coming months.
TECHNICAL OVERVIEW
Overnight’s US PMIs supporting the dollar. Simultaneously, weaker than expected EZ PMIs could cap the common currency in the coming days. If you are a EUR buyer, watch out for euro cross at EURCHF and EURJPY. For the past three weeks, we are recommending buying EUR against the safe heavens.
The price action is again failed at the 1.1900-1.1920 resistance zone. The daily RSI and oscillators are weakening. On the downside, support exists at 1.1750 and 1.1600. Flipside 1.2000 and 1.2060 are the level to watch out for.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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