Euro Faces Persistent Challenges Amid Eurozone Fiscal Concerns

The Euro experienced a significant decline against the US Dollar, falling below the key 1.0800 mark. This decline was driven by a risk-averse market sentiment triggered by Moody's downgrade of China's credit rating, leading to the Euro's fifth consecutive day of decline against the Dollar.

Despite positive economic indicators in the Eurozone, such as the Composite Purchasing Managers' Index (PMI) rising to 47.6, indicating economic improvement, the broader market concerns overshadowed these positive signals. The Eurozone's business activity showed signs of easing, but the services industry continued to struggle, reflecting a contraction in the overall economy.

Eurozone inflation, while declining at a slower pace, remained a concern. Bundesbank President Joachim Nagel mentioned that the outlook for inflation was influenced by factors like weakening base effects, the phasing out of energy price cap measures, and expectations of strong wage growth.

European Union governments faced challenges in reaching a deal on new fiscal rules. The Stability and Growth Pact, which limits budget deficits and debt, had been suspended since 2020 and was set to be reinstated in 2024. Disagreements persisted over the reduction of debt, with Germany advocating for annual benchmarks.

Germany's economy faces increased challenges with a 60 billion euro gap in its finances due to a recent court ruling. Finance Minister Christian Lindner emphasizes the need to respect the debt brake, revealing a 17-billion-euro deficit in the 2024 budget while ruling out tax increases. Despite an unexpected improvement in investor morale in November, Deutsche Bank revises its GDP forecast to a 0.2% contraction. The IMF forecasts a 0.5% GDP shrinkage in 2023, citing the impact of the Ukraine-related energy crisis and inflation, raising concerns about potential business relocations from Germany due to high taxes and energy costs.

The US Dollar Index continued its upward trajectory, reaching a two-week peak, supported by positive economic indicators. The JOLTS Job Openings saw a significant drop, indicating a cooling job market, while the ISM Services PMI provided a more optimistic view, suggesting continued expansion in the service sector.

Despite the decline in job openings, the resilience in the US labor market fueled hopes of averting a recession. The Federal Reserve's campaign of interest rate hikes aimed at curbing inflation raised the possibility of policy remaining restrictive for an extended period.

Looking ahead, markets awaited economic reports, including ADP employment data and Q3 Unit Labor Costs in the US, Eurozone retail sales, and the US Nonfarm Payrolls on Friday. Projections suggested some improvement in Eurozone Retail Sales, but concerns remained about Eurozone GDP figures and uncertainties in the global economic landscape. Hence, there is a likelihood that the euro will experience ongoing pressure or fluctuate within the lower range for the remainder of this year and the early part of the following year.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0799, 1.0802, 1.0807

Support : 1.0789, 1.0786, 1.0781

5H Outlook  

Source: Investing.com

Buy/Long 1 If the support at the price range 1.0779 - 1.0789 is touched, but the support at 1.0789 cannot be broken, the TP may be set around 1.0800 and the SL around 1.0774, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0799 - 1.0809, TP may be set around 1.0815 and SL around 1.0784, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0799 - 1.0809 is touched, but the resistance at 1.0799 cannot be broken, the TP may be set around 1.0787 and the SL around 1.0814, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0779 - 1.0789, TP may be set around 1.0772 and SL around 1.0804, or up to the risk appetite.       

Pivot Points Dec 06, 2023 03:37AM GMT

Sources: Investing 1, Investing 2