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Market Brief
German Gfk consumer sentiment and German gross domestic product (GDP) figures came in below market expectations this morning. Expectations about economic growth and income as well as buying power have declined, and quite significantly. GfK expects a -1.6 point decline in consumer sentiment for December, down 2.6 points from November’s reading of 1.0. In a preliminary report released on Thursday, the Federal Statistical Office Destatis reported that Germany’s GDP grew 1.7% in the third quarter of 2021.
The deteriorating economic outlook from Europe’s manufacturing powerhouse and the rising cases of covid are adding pressure on the ECB to keep supportive monetary measures going for longer. While the USA is looking to tighten its monetary policy faster. In last night’s FOMC meeting minutes, the committee had discussed how “robust” the US economy is expected to be in 2022. The US is celebrating Thanksgiving today and is likely to remain quiet tomorrow as traders enjoy a long weekend.
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Whether the EURUSD can take back some of its heavy losses I don’t know, but the outlook is for lower prices in the single currency while the two economies diverge. Technically the downtrend is not accelerating as fast as it had been as we can see in the MACD histogram. The 3 major moving averages are all rolling over and price is quite far away from the 20-period moving average, so a small rise to test this is possible. Selling the rips would be advisable whilst the macro stays as it is.
The ActivTrader sentiment indicator shows that the majority of traders on the platform are still very bullish, so while this remains true, lower prices should also be expected as these traders get squeezed out of their long position.
Last night’s minutes stated that FOMC participants said COVID-19 vaccination progress and an “easing of supply constraints” were likely to support growth. However, they warned that risks to the outlook remain because “the path of the economy continues to depend on the virus.” If we were to start receiving reports of the US infection rates spiking higher like they are in Germany, the outlook for the EURUSD would become more mixed as the FOMC would most probably adjust to being more supportive.
Committee members reiterated their goals of maximum employment and 2% inflation over the long term. If inflation continues to run higher than the Committee’s objectives, the FOMC will adjust the pace of its asset purchases and raise interest rates.
Today we hear from several ECB members including President Lagarde after the October ECB meeting minutes. Lagarde is due to speak at 1.30pm, so this is when I expect a bigger move to happen in the EURUSD trade today.
We also hear from the Bank of England MPC members which includes Governor Bailey, so the EURGBP could also be a big mover today.
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The EURGBP has been trading on a sideways market under the 0.8450 resistance level for several days. An expansion of this range is the next move to watch out for and as the trend is lower, I favour looking for shorts.
The euro is currently the strongest currency relative to its peers at the London open, with the pound doing well too. If the euro slips against the yen and US dollar on worsening economic sentiment this could be the key to sell the EURGBP.
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The oil markets are currently assessing what the OPEC+ members may do or say in the upcoming December meeting, following the announcement of the SPR and coordinated release of oil from several nations. The energy market is tight, so more supply is needed from the oil rich nations but that would be against their interest of maximising the return on their commodity. Currently the Brent contract is trading above $81 but if Saudi Arabia signal, they are to change course on releasing more oil we could get a spike higher. So far nations like the UAE and Kuwait, say they are committed to keeping with the current plan.
