FUNDAMENTAL OVERVIEW
USD:
The greenback weakened across the board today following the news of the US Department of Justice subpoenaing the Federal Reserve in an unprecedented move that escalates the ongoing conflict between President Trump and Fed Chair Powell for not lowering interest rates faster.
The official reason is that the DOJ is focusing on the Federal Reserve headquarters renovation to see whether Powell made misleading or false statements to the Senate Banking Committee regarding the scale, costs and luxury features of the project.
In reality, everybody knows that this is just a political pretext to intimidate the Fed Chair and force him to cut interest rates faster. We have already seen this kind of intimidation with Fed Governor Cook last year when Trump tried to fire her for cause without success as we continue to await the US Supreme Court decision on that case.
The US Dollar sold off on the news because a potential loss of Fed independence increases the risk of uncontrolled inflation in the future leading to a debasement. The probability of the loss of Fed independence remains very low though as the consequences would be too big not only for the US but the global economy as a whole.
Tomorrow, we have the US CPI report and that could be a major market-moving release. A hot report will likely trigger some hawkish repricing in interest rate expectations and support the US Dollar. On the other hand, soft data should keep the market on expecting at least two rate cuts by the end of the year potentially weighing on the greenback further. The outlook for the USD remains neutral to bearish.
EUR:
On the EUR side, the ECB remains in a neutral stance reaffirming its data-dependent and meeting-by-meeting approach to policy decisions. ECB members have repeatedly said that the current policy is appropriate, and they won’t respond to small or short-term deviations from their 2% target. Moreover, they added that the next moves could be either a cut or a hike. The data has been supporting the central bank’s neutral stance, with inflation data last week surprising to the downside. The outlook for the euro remains neutral.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD jumped today following the news of the US DOJ subpoenaing the Federal Reserve in relation to the Fed’s headquarters renovation. The price is approaching the key resistance around the 1.17 handle where we can also find the downward trendline for confluence.
That’s where we can expect the sellers to step in with a defined risk above the trendline to position for a drop into new lows. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 1.18 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more clearly the reaction to the DOJ news with a strong rally that erased most of last week’s dollar gains. There’s not much else we can glean from this timeframe as the sellers will have a better risk to reward setup around these levels to keep targeting new lows, while the buyers will need a breakout to open the door for new highs.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the price is trading at the upper bound of the average daily range for today. In such instances, we can generally see some consolidation or a pullback before the next move.
UPCOMING CATALYSTS
Tomorrow we have the US CPI report. On Wednesday, we get the November US Retail Sales and US PPI reports, so it’s going to be old data. We also have a potential US Supreme Court decision on Trump’s tariffs. On Thursday, we get the latest US Jobless Claims figures.
