EUR/USD is currently trending higher on an intraday basis. The pair established a low at 1.05640 and is now trading at the 1.06292 area, up 0.15% over Monday’s North American close.
EUR/USD has advanced as the dollar came under pressure following the release of the second estimate of third quarter US GDP, which showed growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate. The dollar peaked at 101.64 as the data was released and has since been under pressure, currently trading at 101.12, slightly lower on the day.
Also in today’s news, November German CPI was released. According to preliminary data, German consumer prices rose 0.1% in November. The year-over-year rate was unchanged at 0.8% and both releases were in line with market expectations. Goods prices rose 0.5% in the year to November from 0.4% the previous month with a significant acceleration in food inflation 1.2% from 0.0% offset by a faster decline in energy prices.
In addition, November Eurozone Consumer Confidence was released, coming in unchanged from the flash reading at -6.1 and an improvement from the -8.0 reading in October.
Despite today’s intraday rebound, EUR/USD is still best described as in a consolidation phase. The upper boundary of the consolidation is at yesterday’s intraday high at 1.06855, which represents a failed test of the November 22nd intraday high at 1.0660.
On the downside, key support at the low established in last week’s trading at 1.05183, which represents a test of key support at the December 2015 corrective bottom at 1.05237 as well as the major corrective bottom established in March 2015 at the 1.04590 level. A drop below the key zone of support would confirm a breakdown from a multi-month trading range, calling for further losses in EUR/USD on a longer term basis.
Given the broader bullish trend in the dollar and expectations for a rate hike and rising inflation in the US, the probabilities appear to favor an eventual break to the downside of the current consolidation phase. At present, fed funds are pricing in a 96.3% probability of an interest rate increase at the December FOMC meeting.
The latest Commitment of Traders report from the CFTC was released on Monday with data as of the November 22nd close. The report indicated large speculators increased long positioning by 5,547 contracts and increased short positioning by 5,713 contracts. The current net short positioning now stands at 119,348 contracts, a marginal increase of 166 short contracts. Net short positioning recently peaked at 137,385 contracts as of November 1st.
In tomorrow’s trading, German unemployment for November will be released. It is forecast to fall by 3,000 from a 13,000 drop a month earlier. In addition, Eurozone Consumer Price Index inflation data for November is on the calendar. The ECB faces a crucial Governing council meeting on December 8th and the inflation forecasts will be extremely important in formulating the bank’s policy decision on bond purchases at the meeting.
In the US tomorrow, the ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month, while Chicago PMI is forecast to rise to 51.8 from 50.6. Pending home sales and the Fed’s Beige Book are also due out on Wednesday.