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EUR/USD headed for first daily close below 1.16 in four months

  • Shared currency remains under pressure despite robust data.
  • DXY refreshes multi-month highs above 95 before going into consolidation.
  • Economic optimism index improves to best level since March.

The EUR/USD pair plummeted to its lowest level since July 20 at 1.1550 during the European session and staged a modest recovery during the second half of the day. Nevertheless, the pair is looking to make its first daily close below the 1.16 handle in nearly four months as investors remain focused on divergent monetary policies between the United States and the euro zone. As of writing, the pair was trading at 1.1588, losing 0.2% on the day.

Upbeat sales data fails to lift the euro

Earlier in the day, the data from the euro area revealed that the retail sales rose by 0.7% and 3.7% on a monthly and yearly basis respectively, both readings beating the market estimates. However, the shared currency struggled to find demand as investors continued to price a dovish ECB stance following today's market speculation. In a report on Tuesday, Bloomberg claimed that the ECB Board member Benoit Coeure, Bundesbank President Jens Weidmann and Bank of France Governor Francois Villeroy de Galhau suggested last month to a commitment to continue buying bonds until inflation improves. Citing officials who asked not to be named, "Peter Praet, the board member who formulates the proposals, opposed revising the stance," Bloomberg reported.

  • ECB to start rising rates in 2019 - Wells Fargo

On the other hand, the IBD/TIPP Economic Optimism Index in the U.S. advanced to its highest level since March at 53.6 with all the subindexes showing improvements in November. After rising above the 95 handle amid the upbeat data, the US Dollar Index started to consolidate its gains and was last seen at 94.80, adding 0.2% on the day.

  • US: Number of job openings was little changed at 6.1 mln in September
  • US: Economic Optimism Index rises across every category in November - IBD/TIPP

The economic calendar on Wednesday won't be featuring any significant data that could significantly impact the price action. The ECB is going to have a meeting, but it's unlikely to trigger any sharp fluctuations as it won't be on the monetary policy. With no fresh fundamental catalysts, the pair is likely to extend its recent losses in the short-term.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "in the 4 hours chart, the 20 SMA gains strength downward above the current level, acting as a dynamic resistance in the 1.1610/20 region, while technical indicators in the mentioned chart have managed to bounce from nearly oversold readings, but remain within negative territory. Beyond the mentioned resistance, the pair can correct higher, up to the critical 1.1660/70 price zone, where selling interest will likely resurge. The daily low at 1.1553 is the immediate support, with a break below it favoring a new leg lower which could end up testing the 1.1460 region."

According to the analyst, supports for the pair could be seen at 1.1575, 1.1540 and 1.1510 while resistances align at 1.1630, 1.1670 and 1.1700.

  • EUR/USD needs to regain 1.17 to alleviate downside pressure – UOB


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