USD strengthens with solid US data; EUR retreats on dovish ECB

The USD tended to gain against its counterparts yesterday on the back of solid financial data as both the retail sales growth rate and the industrial output outperformed market expectations. The acceleration of the prementioned growth rates for October continued to build on a momentum for the market sentiment strengthening the USD after the release of the US CPI Rates for the same month last week. Also on the monetary front it should be noted that St. Louis Fed President Bullard yesterday stated that the Fed should follow a more hawkish approach that provided additional support for the USD. Given that there is a low number of high impact financial data besides the US construction data we expect fundamentals to be leading the USD for today and should the market sentiment be maintained we may see the greenback gaining further.

The USD Index continued to rise testing the 96.15 (R1) resistance line. We tend to maintain a bullish outlook for the index as long as it remains above the upward trendline incepted since the 9 of November. Please note though that the RSI indicator below our 4-hour chart has clearly surpassed the reading of 70 and may be overbought and could correct lower. Should the bulls actually be maintained we may see the index breaking the 96.15 (R1) resistance line and aim for the 96.65 (R2) level. Should the bears take over, we may see the index reversing course and aiming if not breaking the 95.60 (S1) support line.

EUR retreats on dovish ECB

The common currency retreated yesterday against the USD and displayed a similar behavior against the pound yet seems to stabilize somewhat against safe havens JPY and CHF. The solid financial data released yesterday from the US and the UK tended to increase market expectations for a more hawkish stance for the Fed and the BoE, in contrast to the dovish ECB thus increasing the adverse interest differential outlook for the EUR. It’s characteristic that ECB President Lagarde had pushed back against the idea of a rate hike in 2022 on Monday, thus underscoring the dovish stance of the bank and allowing for little hope for the market. On a more fundamental level we note the delay of the operation of Nordstream 2 in Germany, as German authorities have announced a halt of its approval, which in turn could have an adverse effect on the economic recovery of the Eurozone. Today we note the release of Eurozone’s final HICP rate for October while on the monetary front, ECB’s Lagarde and Schnabel are scheduled to speak and should the bank’s dovishness be reaffirmed we may see the EUR losing more ground.

EUR/USD continued to drop against the USD yesterday breaking the 1.1300 (R1) support line, now turned to resistance during today’s Asian session. We maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted since the 10 of November. Please note that the RSI indicator below our 4-hour chart is clearly below the reading of 30, which in the one hand confirms the bearish sentiment for the pair, yet on the other strongly suggests that the pair may be at oversold levels and could correct higher. Should a selling interest continue to be displayed by the market for EUR//USD we may see the pair breaking the 1.1225 (S1) support line, paving the way for the 1.1165 (S2) level. Should on the other hand a correction higher take place we may see the pair breaking the 1.1300 (R1) line and aim for the 1.1370 (R2) level.

Other market highlights for today

Today we note the release of UK’s CPI rates for October and Eurozone’s final HICP rate for the same month during the European session while on the monetary front ECB’s Lagarde and Schnabel are scheduled to speak. In the American session we get the US construction data for October and from Canada we get the CPI rates for October while oil traders may be more interested in the release of the EIA weekly crude oil inventories figure. On the monetary front NY Fed President Williams, Cleveland Fed President Mester, Chicago Fed President Evans and Atlanta Fed President Bostic are scheduled to speak.

USD Index H4 Chart