The EUR/USD pulled back from its highs on Monday, after breaking out above trend line resistance on Friday. Bunds and Gilts, which swung between gains and losses amid a pretty empty calendar that left investors struggling for direction. U.S. tax plans, Brexit and Germany’s political wrangling all remain in focus. Buying on dips remained a feature as the year end comes into view. The data calendar held some pretty disappointing Italian confidence numbers, but will only really become interesting on Wednesday, with U.K. credit data, Eurozone confidence numbers and German preliminary HICP readings for November all due that day.
Technicals
The EUR/USD broke above trend line resistance but pulled back after generating a higher high on Monday. The exchange rate is poised to test target resistance near the September highs at 1.2092. Support on the currency pair is seen near the breakout level at 1.1830, and then the 10-day moving average at 1.1811. Momentum on the currency pair is positive as the MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory which points to a higher exchange rate. The RSI (relative strength index) pulled back from its highs, reflecting accelerating positive momentum.
Holiday Shopping in the U.S. is Strong
The holiday shopping season in the U.S. kicked off in style on Black Friday with strong retail spending, both in brick and mortar shops and online, with estimates around $33 billion, according to Customer Growth Partners data, which would be a 4.9% year over year pick up. The improved economy, the strength in the job market, along with rising optimism domestically and globally, are all ingredients for a cheerful holiday season. Along with the focus on holidays, attention will turn to Congress which returns from the Thanksgiving recess and will set to work on the tax bill where a version passed the House last week, and will be taken up on the Senate floor this week.
German Trying to Form a Coalition
German President Steinmeier will host a meeting between Chancellor Merkel and SPD head Schulz this week to try and convince both sides that a rerun of the grand coalition is the preferable option to new elections and Merkel’s bid to get a functioning government continues to remain in focus amid concerns that the political wrangling in Germany will also delay Brexit decisions and the EU reform process. On the data front, the highlights are the European Commission’s ESI Economic Confidence Indicator which concludes this month’s survey round and is expected to rise to 114.5, from 114.0 in the previous month. The PMI reports already point to rising underlying price pressures and even in the short term headline rates are likely to recover from the dip in October.
No one really wants another round of elections that are unlikely to bring a notably different situation for Merkel, and in that situation, many are starting to see the positive side of the cooperation that has been governing Germany over the past years.