EUR/USD moved off the daily highs ahead of EZ CPI today while Breix continues to weigh
- EUR/USD has fallen back to a low of 1.1321 as profits are taken out of the rally from 1.1271 European lows.
- EUR/USD has been choppy and weighed upon due to Brexit headlines and a wider IT-DE and DE-US yield spread.
EUR/USD was trodden down overnight over Brexit turmoil with UK ministers quitting their positions in protest to PM May's negotiated deal with the EU that effectively does not meet the UK's electorate's vote.
Key Brexit headlines:
- PM vows to fight on: 'Am I going to see this through? Yes'.
- Four ministers quit Government over Brexit deal.
- Dominic Raab and Esther McVey resign from Cabinet.
- Michael Gove offered the job of Brexit Secretary.
- Gove will only take it if he can renegotiate PM's deal.
- Jacob Rees-Mogg submits a letter of no confidence.
- Tory MPs could trigger a vote of no confidence in PM.
What no-confidence vote means for Brexit and Pound?
The threat of a challenge to PM May's authority plunges European politics into higher levels of uncertainty. It increases the chances that the U.K. will exit with no deal at all, risking significant economic disruption for both sides of the deal. Time is running out to negotiate a divorce deal with the European Union before the U.K.’s looming exit in March 2019, and Brexit turmoil is roiling broader financial markets - (EUR trades as a derivative to risk sentiment and was hammered in the European session).
US dollar broadly weaker
However, EUR/USD got a lift when the dollar buckled despite the U.S. Census Bureau US retail sales data in October increasing by 0.8%, exceeding the market's expectations of 0.5%. The move coincided with a reversal on Wall Street that enabled the euro to rally with an unwind in yen longs supporting EUR/JPY's recovery.
There was also some profit taking in the dollar on China/US trade talk news. The headlines that China had moved a piece on the chess board in the Us favour started to lift risk appetite. However, Beijing's bid to appease Washington is probably too little too late. However, due to broadly dire global economic and political conditions, US growth could be hampered which is subsequently impeding on the dollar's advance in an already crowded trade.
Meanwhile, domestically and looking ahead, the eurozone October inflation report should see core CPI unchanged at around 1.1% but a miss to the downside will likely remind markets of the divergence between the Fed and other Central Banks falling in favour of the greenback again - EUR/USD is faded ahead of the release, settling in North America at 1.1328.
EUR/USD levels
- Support levels: 1.1280 1.1250 1.1215
- Resistance levels: 1.1355 1.1390 1.1425
Valeria Bednarik, Chief Analyst at FXStreet explained that the EUR/USD pair trades marginally up for the day, above the 38.2% retracement of its latest daily decline, with a mild-positive tone in its 4 hours chart:
"The price bounced quickly after testing its 20 SMA, while technical indicators resumed their advances, maintaining their upward slopes in positive ground but below early highs. Additionally, the pair remains below firmly bearish 100 and 200 SMA. The 50% retracement at 1.1355 is still in the way for a steeper recovery, while the bearish risk will increase on a break below 1.1250, with scope then to retest the yearly low at 1.1215."