Key Points:
- Euro likely to remain bearish in the week ahead.
- Watch for the US Markit Flash Manufacturing PMI.
- Selling pressure likely to remain in place whilst FOMC meeting looms.
The euro continued to tumble through most of last week as the pair was beset by a general strengthening in the US economic data as well as increased rhetoric on rate hikes from the US Federal Reserve. Subsequently, the trend was firmly within the grips of the bears and this saw the pair close well down around the 1.0576 mark despite the EU GDP and CPI figures coming in on target. Subsequently, it makes sense to take a look at what has occurred over the past week and what is potentially upon the horizon in the week ahead.
Last week proved highly bearish for the euro as the pair continued to decline in light of some strengthening within the US economy and increased rate hike rhetoric from the US Federal Reserve. In particular, testimony from Fed Chair Yellen suggested that there is no reason that short term rate hikes will not go ahead.
This likely puts the December FOMC meeting firmly in focus for a 25bps hike to the FFR and this eventuality has been strongly priced into the euro’s current valuations and has been one of the culprits of last week’s greenback appreciation. In addition, the euro was also impacted by a drop in US Jobless Claims to 235k as well as an unexpected rise in Retail Sales to 0.8% m/m which saw the pair close the week out well down around the 1.0576 mark.
Looking ahead, the euro is again facing a slew of US economic data releases with most of the focus likely to fall upon the Core Durable Goods Orders and Markit Flash Manufacturing PMI results. However, also monitor the Manufacturing and Services PMI results as they could defray some of the potential strength of the US economic indicators. Regardless, the pair is likely to remain at the mercy of the greenback’s sentiment in the week ahead.
From a technical perspective, the initial bias for the week ahead remains unchanged and the pair is likely to continue falling over the next few days. In particular, 1.0517/0461 key support zone remains in focus and we are unlikely to see a halt to the slide until this level is reached. However, the pair may exhibit a short period of sideways consolidation to relieve the oversold oscillators. Support is currently in place for the pair at 1.0558, 1.0516, and 1.0461. Resistance exists on the upside at 1.0848, 1.0966, and 1.1057.
Ultimately, the euro is unlikely to regain any sort of bullish footing until the greenback sentiment swing dies down. At this stage, that doesn’t look to be a likely eventuality until after December’s FOMC meeting given the level of pricing in that has occurred. Subsequently, expect to see the pair remain under the grips of the bears for the majority of the coming week.