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EURUSD is approaching 1.1400 as inflation is expected to stay longer than expected

Quiet day on the economic calendar and the majority of trending securities paused or continued on their path. Inflation is going to be a big part of this week's headline news as are the comments from the central bankers and policymakers.

Market Wrap

According to firms responding to the Empire State Manufacturing Survey, business activity in New York State grew strongly in November 2021. Overall, the general business conditions index climbed eleven points to 30.9. With both new orders and shipments increasing, while unfilled orders also rose. Deliveries took significantly longer than expected but it was the fastest growth in employment in history, with the average workweek also increasing. Inflationary pressures have pushed up the price paid index, which held near its record high, with the price received index reaching a new high too.

During today’s overnight session the first of this week’s retail data points dropped. Today’s readings show that China's retail sales rose by 4.9% year-on-year in October 2021, which is faster than a 4.4% increase in September and beating market predictions of 3.5%. This was the strongest pace of growth in 3 months, as consumption strengthened after COVID-19 outbreaks in some regions eased. Retail sales of goods were up by 5.2% year-on-year while catering revenue was up by 2%, and the food and beverage trade jumped by 25.7%. On a monthly basis, the total retail sales of consumer goods in October increased by 0.43%.

The EURUSD continues to drop towards 1.1400 following a speech given by ECB President Lagarde. Through video conference, President Lagarde told the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament that, after 2 years of being on the job and following a pandemic that none of them could have foreseen, the economic activity in the EU continued to recover strongly in the third quarter. Quarterly gross domestic product (GDP) growth stood at 2.2% and GDP is still expected to exceed its pre-pandemic level around the end of 2021. She said, “thanks to the strong and combined fiscal and monetary policy responses, we expect it to exceed its pre-pandemic level in less than two years.” The speech went on to explain the rising inflation and how they still feel it transitory and anchored on the rising energy prices and COVID-19 disruptions. The downfall of the euro today came on the back of the ECB seeing inflation moderating in the next year, but that it will take longer to decline than originally expected.

The DXY is still trading within Friday’s range, but this pause is setting up for another impulsive move higher. $96.00 still seems the most logical level for traders to aim for. Helping the greenback rise is the US 10-year yields as fixed income treasuries continue to fall, the benchmark yields are currently up 3 basis points. TLT has fallen around 1%.

The stronger USDJPY is also still looking like it will break out to the upside of the bull-flag chart pattern. The yen had been weakening against the backdrop of rising energy prices and a strong US dollar. Today though the Brent crude contract has fallen below Friday's low, and the daily chart is looking weaker. President Biden is currently weighing up whether to release reserves from the SPR, and the energy markets are worried about oversupply as COVID-19 re-enters the European Union in a big way, which could dampen demand for oil.


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