Euro rally fizzles in quiet holiday trade

EUR/USD is unchanged on Thursday, trading at 1.0393. With the US markets closed for the Thanksgiving holiday, we’re unlikely to see much movement from the US dollar.

German business confidence edged slightly higher in November. The Ifo Business Climate index rose to 86.3, above the previous reading of 84.5 and the consensus of 85.0. Business confidence has been on a prolonged downturn – the index was above the 100 level in the summer of 2021 but has steadily deteriorated since then. Ifo Business Expectations accelerated as well, to 93.1, up from 84.2 but shy of the consensus of 93.8. Germany releases consumer confidence on Friday. Consumer confidence has been mired in negative territory, which is expected to edge up to -39.6, up from -41.9.

German PMIs were lukewarm for October. Both the service and manufacturing PMIs remained in contraction territory, with readings below 50.0. The eurozone readings were just as bad, and France, the number two economy in the bloc, reported a contraction in business activity for the first time since March 2021.

The ECB minutes will be released later today, although, like the Fed minutes, they may amount to little more than a repeat of what central bank members have been telegraphing to the markets. The ECB meets on December 15^th and it’s uncertain if the bank will press the rate pedal with a third consecutive 75-basis points hike, or opt for a smaller 50 bp move. Inflation rose to 10.7% in October, up from 9.9% and there are no signs of a peak. ECB member Robert Holzmann said this week that he favors a 75-bp hike, but other members are fearful of a deep recession and want the ECB to ease up on the pace of hikes.

The Fed minutes stated that members were in agreement that lower rates are coming. This wasn’t anything new, as Fed members have been saying this for the past few weeks. The Fed doesn’t want to be pinned down, saying only that an easing in the pace of rates would happen “soon”. Members also noted that inflation hasn’t shown any signs of easing. The markets have priced in a 50 bp hike at the December 14^th meeting, at around 65%, with a 35% of a 75 bp increase. With a nonfarm payroll and an inflation release ahead of the meeting, this rate projection will almost certainly change.

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EUR/USD Technical

• 1.0359 and 1.0238 are providing support
• There is resistance at 1.0447 and 1.0568

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