EUR/USD: bulls taking control and pushing towards key 38.2% fibo
- The political environment weighing on the greenback late.
- EUR/USD making fresh highs and through.
- It is a busy week ahead with plenty to roil US yields.
- EUR/USD headed for a test of 38.2% fibo at 1.1674, Technical Confluences Indicator
EUR/USD is making fresh towards the closing bell in NY and breaking the previous minor recovery highs set on the 26th at 1.1643 in late Asia. The move comes in a broad-based shake out of the greenback on the back of political speculations. Currently, EUR/USD is trading at 1.1655, up 0.39% on the day, having posted a daily high at 1.1657 and low at 1.1594.
Trump to select Powell as next Fed Chair, but what are the implications for the market?
Firstly, there is speculation that Powell will be selected by Trump and announced on the 3rd as the chosen candidate for the next Fed chair, replacing Yellen on the 3rd Feb 2018. In the same space, secondly, the phase-in headline around corporation tax of 20%. According to Bloomberg, being discussed is a "gradual phase-in for the corporate tax-rate cut that President Donald Trump and Republican leaders have promoted, a schedule that would have the rate reach 20 percent in 2022." Also, there were FBI charges against former campaign staff.
"A former Trump campaign foreign policy adviser has pleaded guilty to making a false statement to the FBI after he lied about his interactions with foreign officials close to the Russian government -- the campaign's clearest connection so far to Russia's efforts to meddle in the 2016 election," CNBC reported, adding, "In court records unsealed on Monday, the FBI said George Papadopoulos "falsely described his interactions with a certain foreign contact who discussed 'dirt' related to emails" concerning Democratic presidential candidate Hillary Clinton."
US data today also weighed on the greenback as core PCE inflation resulted unchanged in September from August readings, although personal income and spending grew, the second at a faster-than-expected pace. However, income continued to disappoint.
US: Personal consumption surged in September while income continued to disappoint - Wells Fargo
US yields have been a bit of a rollercoaster today as a result. "US 10yr treasury yields fell from 2.41% to 2.37%, 2yr yields from 1.60% to 1.57%. Fed fund futures yields remained elevated, pricing the chance of a December rate hike at 96%," explained analysts at Westpac.
What are the top-three things affecting 10-yr yields now?
- A new Fed Chair might tolerate faster growth and faster inflation.
- The economy is picking up steam. US: Another strong quarter of growth – NAB
- Prospects for future growth are also improving. Tax reform dominates the market discussion of growth and looks increasingly likely.
Meanwhile, there is plenty out there that is scheduled on the US docket to roil US yields which remain the key driver for EUR/USD this week.
Key data releases for the greenback this week:
- ADP Employment Change
- ISM Manufacturing
- FOMC Rate Decision (FOMC: No change in policy is expected - BBH) (Upper Bound) FOMC Rate Decision (Lower Bound) Initial Jobless Claims
- Change in Nonfarm payrolls Unemployment Rate
- Average hourly Earnings MoM Average Weekly hours
- ISM Non-Manufacturing
EUR/USD levels
- Support levels: 1.1600, 1.1575 and 1.1550.
- Resistance levels: 1.1665, 1.1700 and 1.1745.
From a technical point of view, Valeria Bednarik, chief analyst at FXStreet explained that Monday's advance seems barely corrective, as the price was unable to surpass the 23.% retracement of the Thursday/Friday slide.
"In the 4 hours chart, the 20 SMA heads sharply lower above the current level, converging with the 38.2% retracement of the same decline, around 1.1675, while technical indicators have managed to correct oversold conditions, but hold within a negative territory. The pair would then need to surpass the 1.1660/70 region to gain further ground on Tuesday, but the most likely scenario is that selling interest will surge around it," Valeria noted.