Weak USD Boost EUR

EURUSD is rising firmly today, benefiting from the US Dollar weakness we’ve seen amidst the US midterms fallout, and bullish eurozone inflation data today. On the US front, the Democratic sweep has hit the US Dollar hard, and the greenback has room to drift lower into Friday’s US jobs data which should see the pair stay bid for now. Friday/s data will then be pivotal in determining USD direction through year end. An upside surprise in the data should see December Fed rate hike pricing jump higher, boosting the Dollar. However, any weakness in Friday’s data will see rate hike pricing tumbling, dragging USD lower and creating room for a fresh rally in EURUSD, particularly given hawkish ECB expectations.

Bullish EUR CPI

On the EUR front, today’s eurozone flash CPI estimate saw core coming in at 2.5%, in line with prior and expected readings. However, the headline was hotter, rising to 4% from 3.8% prior. On the back of the hawkish signalling we heard from the ECB at the latest meeting the data keeps year end ECB tightening expectations. Lagarde signalled that rates would likely need to rise further given the stickiness in inflation and the persistent risks from higher energy prices and global geopolitical tensions. As such, any dip in Fed tightening expectations, from a weak NFP print for example, should create bullish ECB/Fed divergence to support EURUSD further.

Technical Views

EURUSD

The rally has seen price breaking back above the 1.1205 level with price now testing the 1.1269 October highs. If bulls can get back above here, focus will be on a push higher towards the 1.1401 level next, in line with bullish momentum studies readings. Any reversal lower will turn focus to 1.1067 next and a resumption of the downtrend.