The Thanksgiving holiday is a celebration of feasts and traditionally marks the start of the holiday season in the US in the build up to Christmas. Well, it is the US dollar which is feasting on its major peers today, continuing the theme of this week and this month.
The widely watched Dollar Index (DXY) is soaring to fresh cycle highs, with EUR/USD plunging ever lower towards 1.12. There are few catalysts for a material dollar correction at present, before the holiday break, with the long-term trend in full effect.
Data dump expected to support strong buck
We get a deluge of US data today which includes the weekly initial job claims, durable goods data and more inflation numbers. These are all expected to improve on the prior month and support hawkish bets being laid on the Fed tightening cycle.
The FOMC minutes out this evening covers the Fed meeting when policymakers announced the tapering of bond purchases. Although a little stale, we may get to hear about the next steps around policy tightening. Comment around inflation and events which could lead to a change in the pace of tapering will also be seized on by the market.
EUR hit hard by more lockdowns
There is much speculation that Germany will follow Austria and impose a national lockdown very soon. This will of course impact economic activity going forward. This morning saw the release of the important German IFO Business survey. The readings were more or less in line with estimates, though the outlook did slide reflecting growing pessimism towards the economy.
The now familiar supply bottlenecks, rising cost pressures and the worsening Covid situation are all weighing on business sentiment. A nervous winter awaits the region, which will potentially lead into the new year.
EUR/USD has dropped below long-term support just around 1.1250 as we head towards the June 2020 lows at 1.1167. Prices are overstretched on several indicators with near-term resistance around 1.13, if there are any bulls around.
EUR/GBP met resistance at 0.8430 yesterday ahead of 0.8450. Previous October support at 0.84015 has been broken today with the move lower in EUR/USD. Sellers have their eyes firmly fixed on the recent cycle low at 0.83795.
Long-term targets if this is broken are the February 2020 low at 0.8281 and the December 2019 low at 0.8275.
If the UK has managed to escape more lockdowns through the fourth wave, investors could start to price in diverging growth and contagion paths, giving a stronger bid to GBP.
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