EurUsd Weekly Outlook for November 13, 2023 – Anticipatory Climate as Euro Eyes Key Resistances Ahead of December Meetings

• A week scarce in data but rich in words, with the Fed continuing to monitor inflation and employment closely. Hawkish statements are interspersed with the aftermath of disappointing employment data.
• Negative data from the Eurozone continues, but inflation expectations don’t seem to be decreasing as expected. A likely standstill on interest rates also in December.
• EurUsd rebounds but halts its rally near significant resistance levels. The 1.07/1.08 area remains for now the barrier to break for the euro to renew its momentum.

Central Bankers Remain Cautious

Within the Federal Reserve, hawks are re-emerging after doves enjoyed a brief pause, particularly following disappointing unemployment data. Chair Jerome Powell hints that it’s too soon to consider a cut in interest rates. Infact, the Atlanta Fed’s economic growth data continues to show a robust outlook, with a current quarterly rate above 2%, pushing back the timeline for any rate cuts.

At present, the market doesn’t anticipate further increases, and a decline in ten-year yields suggests a cooling of inflation concerns. The past week lacked significant data, leading to a prevailing wait-and-see approach. Upcoming inflation and employment data will be crucial in shaping future expectations for monetary policy.

Uncertainty also dominates in Europe, where inflation expectations have risen to 4% for one year and 2.5% for three years. The European Central Bank won’t consider rate cuts until there are reassuring signs regarding inflation. Meanwhile, economic indicators show signs of weakness, with European retail sales contracting by 0.3% in September.

Geopolitical tensions remain unresolved, with the only tangible effect being, paradoxically, the opposite of what markets had anticipated. Oil prices are declining, and the dollar, like gold and the yen, has ceased its upward trend.”

Technical Analysis – EurUsd Bounce and Pause

The U.S. dollar enters its most challenging seasonal period, historically weakening between November and December. Over the past 20 years, this bi-monthly period competes in downturn intensity with other months like April and July, which are also historically tough for the greenback.

December is the worst month both in terms of average performance (-0.8%) and frequency (70% of the time). The worst December was in 2008, with the dollar dropping 6%, while November’s worst was in 2022, with a 5% decline.

Technically, the Dollar Index found initial support around the June highs of 105, close to the 38.2% retracement of its previous significant rally. For now, we’re still within a correction phase.

EurUsd has done precisely what was expected, rising just below the crucial resistance area of 1.075, which previously acted as strong support. If this moving average continues to influence, we can expect another EurUsd surge to around the 1.04 area, where the 50% retracement of the entire rally is located.

In the short term, we do not expect any break above resistance levels. The central bank meetings in December will be decisive, and the market will likely adopt a wait-and-see mode before taking a more definite direction. Thus, hold on to the greenback until at least it reaches 1.08. At the same time, the negative seasonality will curb any significant attempts for the greenback to appreciate.