The last trading week of November started with a bang: The United Kingdom announced it reached a Brexit deal with the European Union and North Korea fired another missile.
Consequently, the volatility surrounding the Forex market witnessed unprecedented levels for a Monday or Tuesday, with the U.S. dollar and other important currencies trying to break from the recent ranges.
Euroboom in Focus
Last time we discussed here how the Euro path of least resistance should be to the upside, and not the downside. We expressed this bullishness via the technical setups on major Euro pairs, with EURGBP, EURJPY and EURUSD having bullish scenarios.
They all broke higher, with EURUSD almost reaching 1.20, EURGBP knocking at 0.90 door and EURJPY dealing above 133. That is, until this week when they pulled back on various reasons, like the ones mentioned at the start of this article.
This time the fundamental picture comes to confirm the technical picture. The European PMI’s came at a staggering level, with France and Germany leading the way in what seems to be a solid growth across all European countries.
For once, the ECB’s wish came through: growth expands to all member countries and unemployment levels fall to impressive levels.
The IFO survey in Germany came at historical highs, printing levels not seen since 1969 and confirming the current monetary policy is too expansionary for the all-mighty German economy.
As such, despite the recent pullback, I wouldn’t be surprised by the Euro to come back with a vengeance and threaten the highs. That is especially true in the EURUSD case, as a pop above 1.20 seems imminent.
Powell and Yellen Testimonies
The future and current Fed Chairman/Chairwoman appear in front of the join Senate commissions this week. The other day Powell, the next Fed’s Chairman, confirmed the fact that the Fed’s balance sheet is likely to stay between 2.5-3 trillion dollars.
For sure the market will focus more on what Powell will say from now on than on what Yellen’s remarks will be today. Nevertheless, expect the dollar to move a bit on Yellen’s testimony.
Despite the significant headlines to start the week, I would say the vital piece of economic data is about to come on Thursday: the CPI or inflation in the Eurozone.
If it ticks higher, it will come to fuel a Euro rally that will spread all over the dashboard. Eventually, the ECB will have to recognize the numbers and signal a major monetary policy shift.
Also published on Medium.