Risk-Off Sentiment Returns in EURUSD

EURUSD drops to one-week low as Risk-Off sentiment returns, unexpected German PPI failed to stop the Euros’ decline. US Dollar bulls emerge on Safe Heaven buying, markets are factoring in a steeper Federal Reserve peak price in 2023.

Fundamental Outlook for EURUSD

This morning, the Euro lost more ground to the dollar as mounting instances of cholera in China seemed to have dampened morale. The dollar has gained from the threat attitude as investors keep turning to the dollar as a safe refuge investment. For the third straight day, the pair is trading lower and near a one-week low, near 1.0250.

German PPI price levels decreased by 4.2% in during month of October, which was good news for the euro. YoY PPI is still quite significant at 34.5%, but the statistics will undoubtedly give more reason to believe that inflation has crested. Even though the numbers would be welcomed, they follow hardline remarks made by ECB President Christine Lagarde on Friday, when she cautioned that now the bank is dedicated to reducing prices down in a timely fashion.

Lagarde continued, stating that rate increases must continue in order to bring back-to-control inflationary pressure. This morning, ECB Chief Economist Phillip Lane reiterated these remarks, saying that he doesn’t think December would be the last rate hike because he thinks inflation will continue to be a problem in 2023 and then beyond.

As a number of Federal Reserve officials maintained aggressive rhetoric, the dollar began to show indications of a comeback toward the end of last week. The forecast for the peak Fed funds peak rate was once again called into doubt as a result of this along with improved retail sales and first unemployment claims statistics.

Markets now predict a peak rate of roughly 5.25% in May of the next year with a 43% greater probability than they did a week ago. The worsening covid circumstance in China over the week, which led to a five-day closure of the Baiyun district in Guangzhou, is supporting the dollar this morning. Chinese officials claimed this Monday that Beijing is dealing with a serious and complicated Covid control crisis, which is enhancing the appeal of the dollar as a refuge currency.

Source: CME FedWatch Tool

The announcement of the FOMC minutes on Wednesday night continues to pose the greatest danger to the pair in the week. Markets will undoubtedly be closely watching given recent data releases and Fed rhetoric. Before the week enters a probable period of lower liquidity due to the Thanksgiving holiday pause, we also have Euro and German PMI data.

     EURUSD Daily Graph– November 21

Source: TradingView

Technically, the pair’s slide this morning has brought it closer to the peak of the bearish flag formation, which might offer modest support in the near future. The 100-day MA, which is sitting near the parity level, can come into play if there is a break below. The pair’s price action is optimistic, but a breach below parity would make bulls less confident going ahead.

Major intraday zones that are important:

Support Areas

•1.0200

•1.0000

Resistance Areas

•1.0350

•1.0500

Daily Simple Moving Averages

Candlestick Analysis

Indication Bearish trend

Reliability High

Explanation The market gains strength on a long white candlestick when it is in an upswing. The next candlestick closes at or very close to its open and moves in a narrow range. This scenario typically demonstrates a loss of faith in the existing trajectory. The black third candlestick serves as confirmation of the bearish divergence. It’s not necessary to have a space between the second and third bodies.