EUR/USD is higher in this morning’s trading following several data releases. The pair is currently trading at 1.0661, up 0.12% from Tuesday’s North American close.
In today’s trading, according to the flash estimate, Eurozone year-over-year CPI inflation increased to 0.6% from 0.5% the previous month, the highest reading since May 2014. The core annual rate was unchanged at 0.8% and both readings were in line with market expectations. The data overall will maintain pressure on the ECB to sustain a very accommodative monetary policy over the next few months.
Also released today was November German Unemployment, which declined 5,000, following a 13,000 decline the previous month. There has not been an increase in the total for 13 months with a 101,000 decline in unemployment in the last 12 months.
EUR/USD maintaining the recent upward momentum today despite strength in the dollar, which is currently trading at 100.98, up 0.14%. EUR/USD is now testing first resistance at Monday’s intraday high at 1.06855, which represents a failed test of the November 22nd intraday high at 1.0660.
Clearing this level of resistance would leave the next target at the 38.2% retracement of the November decline at the 1.07565 level.
Failure to clear first resistance would keep the current consolidation phase intact and leave the pair at risk for another decline to 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, rather than ongoing strength in EUR/USD. At present, fed funds are pricing in a 91.7% 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 the US today, 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 today in the US.