EUR/USD selling has continued into the US trading session, though the bearish intra-day momentum has for the moment eased with the pair finding support above the psychologically important 1.1400 figure. At current levels around the 1.1410 mark, the pair is trading lower by about 0.4% and is over 0.6% lower versus its Asia Pacific session highs in the 1.1480s. Technicians will be eyeing support in the 1.1380 area in the form of the late-November/December highs. Some EUR/USD bulls will be hoping that, after this week’s bullish breakout from the late-November/December ascending triangle, a retest of this key area of support might prove an excellent entry point to reload on longs and to target a move towards 1.1500.
Given the low volumes, thin liquidity conditions typical of late-Friday trade, such a move would likely have to wait until next week. Some might argue that Friday’s fundamental developments (weaker than expected US December Retail Sales and January Consumer Sentiment figures) suggest a higher EUR/USD making sense. There isn’t much by way of tier one US data next week, but if the NY and Philly Fed surveys for January are also sufficiently week, that could back up this argument. But near-term weakness, which will in part be a reflection of surging Omicron infections in the US, will not worry the Fed, which is much more focused on elevated inflation and the tight labour market.
While there will be no more Fedspeak next week given the central bank will have entered blackout ahead of the January meeting, recent hawkishness from FOMC members is likely to remain a key talking point amongst market participants and presents upside USD risk. Dollar bulls betting that Fed/ECB policy divergence will this year weigh on EUR/USD may see current levels to the north of 1.1400 as attractive to add shorts and target a move towards November/December lows in the 1.1200 area.