Key factors currently driving the FX market:
- RBA has no plans to raise rates.
- The virtual summit between US and Chinese leaders showed positive outcome.
- President Biden signed into law a $1 trln infrastructure bill.
- FOMC member James Bullard said that the Fed should “tack in a more hawkish direction” over the next few meetings.
The EURUSD pair slipped 0.42% to 1.1320 on Tuesday, November 16.
Major currencies moved higher during Asian trading, with EURUSD rebounding to 1.1385. Optimism prevailed in the morning in the wak of a positive online meeting between US and Chinese leaders, as well as the signing by the US president of an infrastructure bill worth $1 trln.
On the macro data front, Eurozone 3Q GDP increased 2.2% MoM, while the economy expanded by 3.7% on an annual basis. Employment rose 0.9% MoM and 2.0% in Q3 2021.
The single currency came under pressure following UK macro releases. Stellar employment data raised the odds that the BoE will raise rates in December.
Sterling and gold retraced to intraday highs, but then fell as major currencies slid into negative territory. Strong retail sales, manufacturing and housing market data stateside imply that the Fed could hike interest rates sooner than expected.
Industrial production rose by 1.6% compared to the median consensus that called for 0.7%. Manufacturing output shot up to 1.2%, compared to 0.7% expected.
St. Louis Fed President and FOMC member James Bullard said the Fed should take a more hawkish stance at upcoming meetings. If the regulator accelerates its pace of tapering to $30 bln a month, this could set the stage for rate hikes in Q1 2022. FX participants therefore concluded that the Fed could be preparing the market for rate hikes.
Today’s macro agenda (GMT+3)
Major currencies sank to lows during Asian trading and were showing mixed dynamics by the time of writing. The kiwi and sterling recouped all losses and gained 0.25% against the dollar compared to yesterday's close.
Sterling got a boost from inflation data. The UK's consumer price index outpaced forecasts. Consumer prices surged 4.2%YoY vs. 3.9% expected. In monthly terms, the CPI came in at +1.1% compared to the median forecast of +0.8%. In the upshot, GBPUSD jumped to 1.3472 (+40 pips).
Many Federal Reserve members are scheduled to speak this evening. Bullard surprised the market yesterday by admitting the possibility of a rate hike in Q1 2022. If others subscribe to his opinion, the dollar rally can be expected to continue.
EURUSD pair is currently trading at 1.1309. The daily, weekly and monthly low is 1.1263. Sellers pulled out stops on long positions below the 1.13 level. Price action rebounded by 47 pips. In our view, if the price recovers above 1.1330, sellers will opt for profit taking. The 1.1260-1.1300 zone acts as strong support. If price action continues to trade below 1.1355 until the end of the week, then we could be looking at a pullback to 1.1200.