Despite the Thanksgiving holidays, markets have reacted in kind to the FOMC minutes of the Wednesday US session and we are seeing follow-throughs in currency trends. EUR/USD, however, is stubbornly holding above yesterdays low of 1.1186 although bears continue to pressure the 1.12 figure. At the time of writing, the single currency trades at 1.1209 and has travelled between a high of 1.1229 and 1.1193 on the day so far.
The greenback has gained around 2.8% this month, but the dollar index on the day is down 0.0.7% at 96.770 at compared to the 16-month high of 96.938 it reached late on Wednesday. in general, the greenback remains better bid but has been soft on the day, below the highest levels since July 2020 against the euro.
Minutes from the Fed’s Nov. 2-3 meeting boosted the dollar on Wednesday as Fed members are showing concerns over rising inflation threats. A number of policymakers said they would be open to speeding up the taper of their bond-buying programme if high inflation held and move more quickly to raise interest rates.
Additionally, data on Wednesday showed that US jobless claims were at a 52-year low and consumer spending increased more than expected in October and inflation was rising. Also pressuring the pair, a surge in coronavirus infections in Germany and unusually high inflation rates are weighing on the consumer morale in Europe’s largest economy, a survey showed on Thursday.
Medium-term, we continue to favour the USD., analysts at Rabobank said. ”However, with the market now long USD and short EUR and the money market very aggressively positioned for Fed rate hikes next year, there is scope for pullbacks in the currency pair.’
”Technically”, the analysts argue that, ”EUR/USD could recover back towards the 1.15 area and still remain in the downtrend that has been in play since early June. Potential triggers could be the next round of US data including the December 3 payrolls release. The guidance and tone of the December 15 FOMC meeting is also in view. While there is growing risk that EUR/USD will reach the 1.10 area next year, the risk of pullbacks means that we are holding off from changing our 1.12 target for the time being.”