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The Euro started a fresh increase above the 1.0650 and 1.0665 resistance levels against the US Dollar. The EUR/USD pair gained pace above the 1.0680 level to move further into a positive zone.

It tested the 1.0735 zone before the bears appeared. The pair corrected lower and tested the 1.0600 support zone. It is now rising and above the 1.0620 level and the 50 hourly simple moving average. An immediate resistance is near the 1.0665 level.

The first major resistance is near the 1.0680 level. A break above the 1.0680 resistance level could start another increase. In the stated case, it could rise towards the 1.0740 resistance.

Conversely, the pair might start another decline below 1.0620. The next key support is near 1.0610 and a trend line on the hourly chart, below the pair could drop towards 1.0565 on FXOpen. Any more losses might send the pair towards the 1.0540 level.

Bundesbank projects that the German economy will contract -0.5% in 2023, then grow by 1.7% in 2024 and 1.4% in 2025. President Joachim Nagel said, "Economic output is likely to shrink initially, but we expect a gradual recovery from the second half of 2023...  Compared to the June projection, the rate of change of GDP for 2023 has been revised significantly downwards."

HICP inflation is projected to decline to 7.2% in 2023, then to 4.1% in 2024, and 2.8% in 2025. HICP excluding energy and food is expected to increase slightly to 4.3% in 2023, then gradually decline to 2.9% in 2024 and 2.6% in 2025. .

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The Nasdaq 100 plunged as global central banks' hawkishness rattled investors. The choppy price action was due to multiple catalysts this week and layers of resistance from last September’s sell-off. The most recent rally reversed its course at 12200, a support-turned-resistance from mid-September. A breach of the lower end (11500) of the consolidation confirmed a lack of buying interest and might cause a test of the origin of a previous bullish breakout at 11150. As the RSI goes oversold, 11800 is a fresh hurdle in case of a bounce.

The New Zealand dollar slipped after the Fed stressed on keeping the interest rates high for longer. The kiwi’s break above the August high of 0.6460 has helped improve sentiment. Now the bulls will need to consolidate their foothold before they could push higher. A fall below the origin of the latest bullish candle suggests a lack of follow-through, and in conjunction with signs of overextension from the overbought RSI, may prompt buyers to take profit. 0.6300 is the closest support and 0.6460 a fresh resistance.

The Swiss franc retreated after the SNB raised its policy interest rate by 50 basis points as expected. On the daily chart, the US counterpart is testing last April’s lows near 0.9220 after giving up all gains from the most part of this year. As the RSI shows a bullish divergence in this demand zone, bargain hunters have scooped the bottom but the mood is too cautious to warrant a reversal yet. 0.9380 is the first hurdle ahead and its breach would ease the downward pressure. Failing that, the dollar could tank below 0.9220.

Markets

The ECB delivered a 50 bps hawkish-to-the-bone rate hike yesterday. More than a third of ECB governors wanted a third 75 bps move, Bloomberg reported. To get the hawks on board, the ECB’s communication was very aggressive. Rates “will still have to rise significantly at a steady pace” the statement said. President Lagarde explained this meant that 50 bps is the standard “for some period”. In addition, the balance sheet roll-off (APP) will start at the beginning of March, at a (cautious) monthly $15bn. Lagarde stopped short of calling markets outright wrong and stuck to a more elegant “The ECB needs to do more than markets price” (terminal rate then less than 3%). Ceci n’est pas un pivot and complacent markets were shoved it in the face. German yields rallied 14.3 bps (10y) to 25.4 bps (2y) higher and from a technical perspective call off the immediate downside alert. Swap yields jumped between 11.9 and 18.5 bps. Peripheral yield spreads rose brutally in Italy (+16 bps). European rate action failed to inspire the US though. The front still added up to 3.3 bps but the longer end slipped about 4 bps following disappointing US data across the board (Empire manufacturing, Philly Fed outlook, retail sales, industrial production). Hawkish ECB language reverberated through European (-3.5%, Stoxx50) and US equities (-3.2%, Nasdaq). This risk-off cut the euro rebound against the dollar short – but not against most other G10 peers. EUR/USD retreated from a 1.0735 intraday high to close at 1.0628. The dollar flourished, with DXY rising back above 104. Sterling got a double whammy from the risk climate and the BoE. Growing internal division and cloudy (sometimes simply confusing) communication trumped a 50 bps interest rate support (with more to come). EUR/GBP rebounded from 0.86 to 0.8727, calling an end to the multiple tests of the 0.8567 critical support area.

After the monetary heydays it’s back to economic data with the all-important European PMI’s. In November they showed tentative signs of bottoming, be it still below neutral levels. But that came as a positive surprise nevertheless. The bar for today is set at a status quo. There may be some room for another upside beat with the general trend of confidence bottoming out to continue. The first real winter stress test from this week probably hasn’t filtered through in the survey yet. Either way, we’ll be looking for European yields to extend yesterday’s dramatic surge going into the weekend. A weekly close in the European 10y swap yield above the June high (2.72%) would be a nice-to-have. Germany’s 10y yield should take out the 50% recovery level of the Oct-Dec correction (2.136%). Next resistance in EUR/USD is located at 1.0787 but that requires a neutral equity sentiment at minimum.

News Headlines

Slovak PM Heger’s minority government yesterday lost a vote of no confidence by 78 votes to 72. Heger turned PM last year after swapping portfolios with previous PM Matovic who had to take a step back over the purchase of Russian Covid vaccines. This Summer, junior coalition partner SaS demanded Matovic’ resignation as Finance Minister over what legislation the government should adopt in the battle against safeguarding disposable incomes. Heger refused to scupper his party member after which SaS exited the coalition. A last-minute offer to eventually sack Matovic came too late with Heger thus losing the vote of no confidence. Slovak president Caputova now has to decide whether Heger can continue as caretaker PM or appoint another political leader with the aim of avoiding snap elections. The next Slovak parliamentary vote is scheduled in early 2024.

The Danish central bank (Nationalbank) raised its current account rate from 1.25% to 1.75%, matching the ECB’s rate hike earlier on the day in order. The Danish krone trades on the strong side around parity against the euro (EUR/DKK 7.4375 area vs 7.46038) which triggered FX intervention selling van het Nationalbank. Some therefore expected that the central bank would no longer follow the ECB’s tightening pace 1:1 (as it did in October) even as the Danish Nationalbank has its own inflation issues to tackle.

Daily Pivots: (S1) 1.0568; (P) 1.0652; (R1) 1.0711; More...

Intraday bias in EUR/USD is turned neutral first with current retreat. But further rally is expected as long as 1.0481 resistance turned support holds. Firm break of 61.8% projection of 0.9729 to 1.0481 from 1.0289 at 1.0754 will pave the way to 100% projection at 1.1041. However, firm break of 1.0481 will confirm short term topping and bring deeper fall to 1.0289 support.

In the bigger picture, focus stays on 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Rejection by 1.0609 will suggest that price actions from 0.9534 medium term bottom are developing into a corrective pattern. Thus, medium bearishness is retained for another fall through 0.9534 at a later stage. However, sustained break of 1.0609 will raise the chance of trend reversal and target 61.8% retracement at 1.1273.

Daily Pivots: (S1) 1.2079; (P) 1.2256; (R1) 1.2355; More...

A short term top is formed at 1.2445 in GBP/USD on bearish divergence condition in 4 hour MACD. Intraday bias is back on the downside for 55 day EMA (now at 1.1865). Firm break there will target 38.2% retracement of 1.0351 to 1.2445 at 1.1645. For now, risk will stay on the downside as long as 1.2445 resistance holds, in case of recovery.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248. This will remain the favored case as long as 55 day EMA (now at 1.1860) holds.

Daily Pivots: (S1) 0.9236; (P) 0.9276; (R1) 0.9326; More...

There is no clear sign of bottoming in USD/CHF despite loss of downside momentum. Further fall would be seen towards 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056. However, break of 0.9378 resistance will indicate short term bottoming and turn bias back to the upside for 0.9545 resistance instead.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Sustained break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 0.9545 resistance holds.

Daily Pivots: (S1) 135.97; (P) 137.07; (R1) 138.90; More...

Break of 137.95 suggests resumption of rebound from 133.61. Intraday bias is back on the upside for 142.24 resistance next. On the downside, however, firm break of 133.61 support and 133.07 medium term fibonacci level will confirm resumption of whole fall from 151.93.

In the bigger picture, price actions from 151.93 medium term could be just a corrective pattern to up trend from 102.58 (2021 low). Strong support from 38.2% retracement of 102.58 to 151.93 at 133.07 and 55 week EMA (now at 131.71) will set the range for such corrective pattern. However, sustained break of 55 week EMA will pave the way to 61.8% retracement at 121.43.