In the Asian session on Thursday, the EUR/USD currency pair dropped modestly. It exchanged within the limit of 1.1660 – 1.1655. The market is preparing for high-impact US economic data including CPI, retail sales, and FOMC rate decision. Most importantly, the Challenger Job Cuts and Weekly Initial Jobless Claims are due soon, plus key inflation data is due out Friday. While the EUR-USD pair has relaxed from its recent peak, its downside seems constrained by the favorable fundamental backdrop.
In the last few weeks, the Swiss Franc (CHF) has been trending downward against the USD. At one point during trading, it hit -0.14% and later -0.10%. At the same time, other key currencies showed mixed performance against the greenback. The British Pound (GBP) was down 0.09%. At the same time, the Japanese Yen (JPY) lost 0.17%, while the Australian Dollar (AUD) gained 0.18%. These shifts signal the ongoing uncertainty and ambivalence within the foreign exchange market as investors eye key economic indicators.
Tucked away in last week’s macroeconomic data from the United States were more encouraging signs, pointing to a gradual cooling of what remains an overheated economy. Most significantly, the US labor market slowdown continued to deepen in November, adding uncertainty to what happens with monetary policy from here. Now, analysts say this unprecedented trend may be responsible for reducing the size of future interest rate cuts in the US. That anticipated shift is creating a risk-on environment across markets. Such circumstances could play a role in limiting any potential appreciation for the typically safe-haven US dollar.
This is because the most recent movement of the EUR/USD pair was largely driven by its overnight breakout. This breakout happened through the 100-day Simple Moving Average (SMA). This potentially bullish technical milestone proved to be an important catalyst for traders and helped buoy the pair’s overall strength in spite of continued volatility. The market is still sharply focused on judging the impact of coming economic releases. The EUR/USD pair is staying well above the 1.1600s, which shows that the investor confidence is still very much alive.
The buildup to Friday’s inflation data is remarkable enough, but its impact could go on to further define market sentiment and trading strategy. A lower-than-expected inflation number would increase support for maintaining accommodative monetary policies. Such an outcome would lift risky assets higher and lessen the haven demand for safe havens such as the USD.