Dollar Boosted by Safe-Haven Demand.
As inflation in the U.S. seemed to cool off, the greenback retreated and allowed its major counterparts to rally, weakening the long-term downtrend. Increased demand for safe-haven assets may put an end to the said rallies, as Covid-related fears emerge from China.
The rising numbers of Covid cases in China have reduced hopes of easing the restrictions that have subdued the economy, causing investors to dump risk assets and look for safe havens such as the US Dollar.
On top of this, St. Louis Fed President Bullard mentioned last week that the interest rate could reach a peak range between 5% and 7%, which is higher than what investors are currently pricing. According to consensus, the Fed is likely to hike the rate by 50 bps in December and then to continue with smaller 25-bps hikes at their next meetings.
This week, both the Fed and ECB will release the Minutes of their latest interest rate meetings and the documents are likely to contain clues about the next monetary policy moves. Most market participants are focusing on these releases as they could prove crucial for the next FX moves.
Key Data for the Week Ahead
Tuesday, FOMC members Mester, George, and Bullard will speak at two separate events. The speeches are scheduled at 4:00 pm GMT, 7:15 pm GMT, and 7:45 pm GMT, respectively. These are marked as medium-impact events on the calendar but they could easily turn into high-impact events if the interest rate is mentioned.
Wednesday is PMI day, as a bunch of these surveys will be released starting early at 8:15 am GMT with the French Services PMI and followed at 8:30 am GMT by the German Manufacturing and Services PMI. The U.S. Services and Manufacturing PMIs will be released at 2:45 pm GMT.
Wednesday at 7:00 pm GMT, the FOMC will release the minutes of their latest Meeting and the ECB will do the same Thursday at 12:30 pm GMT. Thursday the United States will celebrate Thanksgiving Day and no major data will come out; also, volatility may be affected by this holiday.
Technical Outlook – EUR/USD
Looking at last week’s price action, it’s fair to assume that the bullish move failed to break the resistance at 1.0350. The move that took the pair into that resistance was very strong and fast, which called for a retracement.
Given the confluence created by the mentioned resistance, the upper Bollinger Band, and the “almost” overbought RSI, there’s a decent probability of a drop into the middle line of the Bollinger Bands.
As an alternate scenario, the pair could still break the resistance at 1.0350 but the climb may be limited due to the position of the RSI and the overextension of the current bullish move. The data released throughout the week will probably have a big impact on the pair’s movement.