EUR/USD pulls back from three-week highs after Eurozone data releases | FXStreet

EUR/USD is trimming gains on Friday, following a seven-day rally and trades at 1.1615 at the time of writing, still on track for a 0.45% weekly appreciation. The fairly positive Eurozone Gross Domestic Product and the upbeat Trade Balance reports have failed to support the Euro, which has lost steam, weighed down by a negative market sentiment.

Eurozone GDP has confirmed that the region’s economy grew at a 0.2% pace in the three months to September, while the year-on-year growth has been revised to 1.4% from the previously estimated 1.3% reading. Furthermore, September’s Trade Balance data revealed that the region’s trade surplus widened to EUR 19.4 billion, from the upwardly revised 1.9 billion in August.

The Dollar has remained on the back foot during most of the week, despite Federal Reserve (Fed) policymakers’ hawkish comments. On Thursday, St. Louis Fed President Alberto Mussalem and Cleveland Fed President Beth Hammack were more concerned about the risks of inflation than about the labour market’s momentum, while Minneapolis Fed President Neel Kashkari delivered a more neutral message.

Daily digest market movers: Euro remains buoyed on US Dollar weakness

• The Euro has been trading higher this week, supported by US Dollar weakness rather than positive Eurozone data. Investors remain cautious about placing large US Dollar longs amid the economic data blackout, and so far, unfazed by the hawkish comments from Fed officials. The release of a backlog of delayed figures next week will clarify the picture of the US economy and is expected to set the US Dollar’s direction.
• On Thursday, Fed’s Hammack said that monetary policy is currently barely restrictive, and that interest rates need to be at levels that help to reduce inflation, suggesting that she will be against an interest rate cut in December.
• St. Louis Fed President Alberto Mussalem showed a similar view, pointing to inflation as the central bank’s main concern and affirming that the Fed has “limited room to ease without becoming overly accommodative”.
• Also on Thursday, Fed’s Kashkari pointed to a resilient US economy in an interview at Bloomberg and urged caution with further monetary easing. Regarding December’s meeting, Kashkari said that he is still undecided but that he does not have a strong inclination for an interest rate cut.
• In Europe, the Eurozone’s Industrial Production figures showed a 0.2% growth in September, following an upwardly revised 1.1% decline in August. Year-on-year, factory activity remained expanding at a steady 1.2% pace, figures well below market expectations of a 0.7% monthly growth and a 2.1% yearly improvement.

Technical Analysis: Testing support at the reverse trendline, near 1.1610

EUR/USD broke the top of a descending channel from early October highs and is consolidating gains on Friday. Technical indicators are positive, but the 4-hour Relative Strength Index (RSI) is nearing overbought conditions after rallying continuously for the last eight days. The Moving Average Convergence Divergence (MACD) in the same timeframe seems likely to cross below the signal line. All in all, signals hinting at some consolidation might be ahead.

Bulls should remain above the channel top, currently around 1.1610, to confirm a trend shift, and keep the October 28 and 29 highs, near 1.1670, in focus. Further up, the target is the October 17 high, near 1.1730. A correction below the mentioned trendline, at 1.1610, on the other hand, is likely to seek support at the November 12 low, in the vicinity of 1.1575, ahead of the 1.1530-1.1540 area (near November 7 and 10 lows).

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