Noteworthy
- U.S. Dollar Drops for a Fourth Day; Euro, Pound Hold Above 200-DMA
Despite prominent European Central Bank (ECB) officials emphatically stating the conversation around rate cuts is premature, the futures market anticipates nearly 100 basis points of cuts in 2024 which paces alongside US expectations. Therefore, the euro currency no longer holds a notable advantage as far as interest rate expectations are concerned.
Nevertheless, EUR/USD has put in a strong performance after U.S. inflation data fell encouragingly on Tuesday. The unwinding of US outperformance is forcing markets to reassess whether the world’s largest economy is showing signs of frailty like the rest of the major economies.
A massive move higher of around 1.7% yesterday made a strong case for a bullish reversal, even surpassing the key 200-day simple moving average (SMA) in the process. The 200 SMA is widely followed as a longer-term trend filter as the pair is yet to even test the level, this time as support.
1.0830 is the most immediate level of support and should the pair hold above it, would bode well for further bullish momentum, particularly if US retail sales data continues the trend of weaker fundamental data.
US retail sales carries more importance in light of the recent trend of softening US data. Markets will be particularly concentrated on the health of the US consumer given the sizeable contribution it made to the massive Q3 GDP figure. Thereafter, the final number for EU core inflation is due but there is little to suggest this will vary much, if at all.
Tomorrow there is a notable concentration of Federal Reserve speakers, and it will be interesting to see if they pose any resistance to the more dovish sentiment moving through markets after the lower US inflation data.
Implied rate hikes and cuts based off the futures market
Source: Refinitiv, prepared by Todd A. Blonshine
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