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Euro Doomed To Weakness Amid Weak Eurozone Data

By InstaForex GroupForexDec 03, 2021 04:00AM ET
www.investing.com/analysis/euro-doomed-to-weakness-amid-weak-eurozone-data-200610331
Euro Doomed To Weakness Amid Weak Eurozone Data
By InstaForex Group   |  Dec 03, 2021 04:00AM ET
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The European macroeconomic data failed to cheer up market participants. For a start, the unemployment rate logged a downtick to 7.3% from 7.4% that is certainly positive news. At the same time, jobless rates are way below the US and the UK. Besides, the situation in labor markets is notably better in many countries with less developed economies.

Nevertheless, a minor decline in the unemployment rate offsets dismal PPI data. Producer prices leaped to 21.9% from 16.1%, much stronger than the expected 18.3% growth. There is no doubt that consumer inflation in the EU is set to accelerate further, having already surged to 4.9% in annual terms.

On the one hand, the ECB affirms that soaring inflation is transitory, so it is not appropriate to take any counter-measures to contain it. Formally, the ECB does not intend to change anything in its monetary policy. Under such conditions, rampant inflation could entail economic shocks.

On the other hand, a lot of market participants are confident that Christine Lagarde dropped some hints that monetary policy would be tightened soon. So, there are two equal camps of investors with opposite viewpoints on the ECB plans.

EU PPI data.
EU PPI data.

Unlike the EU metrics, the stats from the US inspired optimism. The number of initial unemployment claims went up to 222K last week, whereas economists had projected the increase to 245K. The previously reported growth was revised downwards to 28K, though analysts had expected a 46K rise.

The number of continuing unemployment claims should have contracted by 49K, but the revised number was 14K bigger. As a result, the reading contracted by 67K to 1,956 million. The consensus supposed the total number of continuing unemployment claims at 2 million. Significantly, the number of Americans on the dole went below 2 million for the first time since early 2020. No wonder the US dollar is asserting strength.

US continuing claims.
US continuing claims.

Bearing in mind forecasts of the economic data which is due today, the euro is doomed to weakness. The revised PMIs are of no importance because the market had already priced in this factor when the preliminary PMIs were released. Minor changes will follow even if the actual data differs from the flash estimates.

Retail sales slowed down to 1.4% from 2.6% on the minus side. Thus, consumer activity in the EU is dwindling, though it is the main driving force of the EU economic growth.

EU retail sales.
EU retail sales.

The currency market is set to trade sideways in anticipation of the government nonfarm payrolls that are in the spotlight this week. In the worst case, the unemployment rate may remain flat, though some analysts reckon it edged down to 4.5%.

The US economy is expected to add 550K jobs in November, excluding farm employment. This is three times as big as needed to sustain the steady jobless rate. Thus, the unemployment rate is going to continue its decline. Therefore, there are solid fundamentals for the US dollar to extend its bullish trend.

US nonfarm payrolls.
US nonfarm payrolls.

EUR/USD was trading in the range of 1.1300/1.1355 for 40 hours. Eventually, it crossed the lower border. This price action indicates the overwhelmingly bearish sentiment in the market.

On the 1-hour chart, the RSI technical instrument completed a consolidation along the 50 level. The indicator is now moving lower at 30/50, confirming a sell signal.

On the daily chart, EUR/USD is following the overall downtrend interrupted by a correction and range-bound trading.

Outlook and trading tips

If EUR/USD settles below 1.1300 in the 4-hour chart, sellers have a higher chance to push the price down. This scenario could drag down the euro to 1.1235, the local low of November 30, and later on to the area of 1.1160/1.1180, where the price could get trapped sideways.

The alternative scenario will come into play if EUR/USD again gets stuck in the range of 1.1300/1.1355.

Complex indicator analysis generates a sell signal for intraday trading and the short term because the price holds firmly below 1.1300. Technical tools also suggest the medium-term downtrend, signaling selling opportunities.

EUR/USD price chart.
EUR/USD price chart.

InstaForex Group

Euro Doomed To Weakness Amid Weak Eurozone Data
 

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Euro Doomed To Weakness Amid Weak Eurozone Data

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