EUR/USD slips on ECB warning, PMIs next

• ECB financial stability review warns of stress
• Fed minutes point to rates remaining restrictive

The euro is in negative territory on Wednesday. In the North American session, EUR/USD is trading at 1.0864, down 0.42%.

ECB says banks showing stress

The ECB released its semi-annual financial stability review earlier today and warned of stress in financial stability in the eurozone. The report found that tighter financial conditions were making it difficult for households, businesses and governments. In short, the financial stability outlook remains fragile. The review warned that the Israel-Hamas war posed the risk of affecting the supply of oil, which could push inflation higher and dampen growth.

The economic picture in the eurozone is not encouraging, as the eurozone economy is stagnating and Germany, once a global powerhouse, has become a deadweight in the eurozone with its weak economy. The euro has jumped 2.8% against the US dollar in November, but that is more a case of US dollar weakness due to expectations of rate cuts in the US rather than strength in the euro.

In the US, unemployment claims were lower than anticipated, coming in at 209 thousand. This was below the market consensus of 225,000 and the previous revised release of 233 thousand. The reading indicates that the labour market is still showing signs of strength, which supports the Federal Reserve’s rate policy of higher for lower.

The Federal Reserve minutes of the November meeting stated that the Fed plans to proceed with caution and will be keeping an eye on the data in making future rate decisions. The minutes made no reference to any discussion at the meeting about rate cuts, consistent with Jerome Powell’s comments after the meeting that the Fed “is not thinking about rate cuts at all”. The markets would beg to disagree and have priced in a rate cut in mid-2024.

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EUR/USD Technical

• There is resistance at 1.0951 and 1.1017
• 1.0831 and 1.0748 are providing support

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