The US dollar remains under pressure as Treasury yields fall to new lows.
On Wednesday, Spain and Germany will release consumer inflation figures.
The EUR/USD reached levels above 1.1000, but then pulled back, casting doubt on further gains in the near term.
The EUR/USD crossed above the 1.1000 level for the first time since mid-August, before pulling back moderately. The trend remains bullish and the US dollar remains under pressure. The focus will be on European inflation figures and Fed talks.
The German GfK consumer confidence survey showed a slight improvement in the main index from -28.2 to -27.8. Eurostat will release its November sentiment survey on Wednesday.
Officials at the European Central Bank (ECB) are far from declaring victory over inflation. However, markets are pricing in rate cuts for the second quarter of next year. On Wednesday, Spain and Germany will report on November consumer inflation, which will be crucial. Spain’s annual consumer price index (CPI) is expected to fall from 3.5% in October to 3.4% in November, and Germany’s from 3.8% to 3.5%. Even with the slowdown, the CPI would remain above target and economists warned of a possible rebound in December.
The sharp decline in the US dollar pushed the EUR/USD higher. The greenback was already under pressure, and comments from Federal Reserve officials weighed further as US Treasury yields hit new lows. On the economic front, CB Consumer Confidence rose to 102 in November, but October’s figure was revised down from 102.6 to 99.1. On Wednesday, the U.S. will release a new estimate of Q3 GDP data and the Fed will release its Beige Book.
The EUR/USD rose for the fourth consecutive day, but then pared some of its gains. The trend remains bullish, with prices above key simple moving averages (SMAs). However, the Relative Strength Index (RSI) is above 70 and a pause might be expected after a four-day rally.
In the 4 hours chart, the direction is also clearly upward, and several technical indicators are showing extreme overbought readings. Although the price is above the 20 SMA, the momentum is still strong. As long as the price stays above the 1.0970 level, there is potential for further gains. Resistance to breach is at the 1.1010 level, with the next target above at 1.1040. On the downside, immediate support is at 1.0970 and below that at 1.0940. A break below 1.0940 would weaken the short-term outlook for the euro.
