German Ifo reading jumps to 117.5, the highest since at least 20 years, and more importantly perhaps, led by a jump in the current conditions indicator to 111.0 from 109.1, which more than compensated for the slight dip in the current conditions indicator. Following on the heel of the much stronger than expected PMI readings yesterday the number will add to pressure on Draghi to defend his decision to extend QE again and not commit to an end date for QE. Against that background we may get a pretty unchanged forward guidance in December, but clearer hints from Draghi that in the central scenario net-asset purchases will end in September next year
EURUSD has rallied to fresh highs, breaching the mid-November high and making a six-week peak of 1.1874 so far following a strong German Ifo reading. The German IFO hit a 20-year high, which follows solid preliminary November PMI survey data out of the Eurozone yesterday. There is also news that Germany’s SPD is ready to hold talks with Merkel, raising hopes that the political deadlock may be broken. Markets are also still factoring in the minutes to the recent Fed policy meeting, published on Wednesday, which highlighted policymaker concerns about the persistence of benign inflationary readings.
Hence after consolidation of EURUSD seen yesterday on US market absence, only a break above the strong resistance seen the last 2 months at 1.1880 – 1.1900, could swing the scopes back on the 1.2000 level. The short-term MACD is positive, and RSI is sloping positively, looking that there still space until reaching overbought territory. However if pair fails to break today that resistance area, then pair is likely to reverse back lower to intra -day support at 1.1835.
In a Daily based, support comes at 1.1810. Hence a break below that , will suggest weakness is increasing and therefore pair might retest 50-Day MA at 1.1750 or even lower to the next support at the 20-Day MA, i.e. 1.1690. In Daily charts, RSI and MACD lines are neutrally configured, while Stochastic looks overbought.
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