EUR/USD rises despite French government collapse
- PM Barnier loses a vote of no-confidence, as expected
- Eurozone retail sales fall -0.5% MoM
- EUR/USD trades caught between 1.0450 and 1.06
EUR/USD is rising despite the collapse of the French government. French lawmakers passed a no-confidence vote against PM Michel Barnier on Wednesday evening, throwing the country into more political uncertainty and a deeper crisis.
However, both the euro and the French CAC managed to move higher because the collapse of the French government was already priced in. Furthermore, contagion outside of French markets is fairly limited. The risk premium on holding French debt over German debt has risen to its highest level since 2012.
On the data front, eurozone retail sales were weaker than expected, falling -0.5% MoM in October after falling -0.3% in September. The data comes after weak PMI data yesterday showed the eurozone composite PMI fell to a 10-month low.
The ECB is expected to cut interest rates by 25 basis points next week, and the markets are also pricing in around 157 basis points worth of easing by the end of next year, significantly more than the level of easing expected from the Federal Reserve.
The US dollar is trading slightly lower versus its major peers after Federal Reserve chair Jerome Powell's speech yesterday, where he continued support for a slower pace of rate reductions ahead but did nothing to deter from expectations of a December cut.
Attention now turns to US initial jobless claims and comments from fed Barkin.
EUR/USD forecast- technical analysis
After recovering from a low of 1.0330 EUR/USD is consolidating between 1.06 and 1.0450. To extend the bearish trend that has been in place since the end of September, sellers will look to break below 1.0450 to test 1.04 and 1.0330.
Meanwhile, a rise above 1.06 creates a higher high and support the pair towards 1.07
USD/JPY falls with BoJ rate hike bets in focus & ahead of jobless claims data
- BoJ chatter & safe haven flows support the yen
- US eases after post-Powell gains; jobless claims are up next
- USD/JPY falls towards 150.00
USD/JPY resumed its downtrend after rising in the previous session. It is strengthening as traders assess whether the BoJ will hike interest rates again later this month. Known dove policy maker Nakamura said he wasn't opposed to rate hikes, which has helped to strengthen the currency.
BoJ will announce its rate decision on December 19th, and expectations of a hike have been growing following recent comments from Ueda. However, media reports have raised questions over whether the hike will actually happen.
The yen is also benefiting from concerns surrounding South Korea, where the won continues to trade around a 2 year low following a short-lived martial law decree.
The U.S. dollar gained yesterday, but it's inching lower against its major peers today after Federal Reserve Jerome Powell highlighted the strength of the U.S. economy and signaled support for slower rate reductions. However, a December rate cut is still expected, with the market pricing in a 74% chance of a 25 basis point reduction.
Attention is now on US jobless claims, which come ahead of Friday's non-farm payroll report. Expectations are for 215k jobs added, up from 213k. Non-farm payrolls are expected to show 200,000 jobs were added in November up from just 12,000 in October.
USD/JPY forecast – technical analysis
After falling from a peak of 156.75, USD/JPY fell below the 200 SMA before finding support at the 100 SMA at 148.65. The recovery failed to rise above 150.8, the 0.5% Fib retracement of the 162 high and 139 low.
Sellers supported by the RSI below 50 will look to extend the bearish trend below 148.65 towards 148.15 the 38.2% level and towards 145.00.
Should buyers retake 150.80 a move towards 153.85 and 157.10 could be on the cards.