The euro remains under pressure, and EUR/USD has fallen below the 1.1200 level for the first time since late June. The euro is trading at 1.1194 in the North American session, down 0.51% on the day. The euro is having a dreadful month of November, down 3.17%.
German business confidence declines
The euro is having another bad day at the office, courtesy of a drop in the German Ifo business climate survey. In November, business confidence fell to 96.5, down from 97.7 in November. The index has declined for a fifth straight month, pointing to a prolonged downtrend. The survey found that supply bottlenecks and the fourth wave of Covid were the top concerns of businesses. Manufacturing continues to expand, but the production has been scaled back due to a shortage in materials, such as auto microchips. A spike in Covid cases and supply shortages is a recipe for trouble, and the German central bank has warned that Q4 could show negative growth due to the shortage in goods and workers, combined with health restrictions due to Covid.
With US markets closed for Thanksgiving, attention will be focused on the ECB. The minutes of the November policy meeting will be released, and investors will be looking for clues ahead of the key December policy meeting. The ECB is expected to announce at the meeting that the Pandemic Emergency Programme (PEPP) will be terminated in March 2022. As well, ECB Christine Lagarde will address an ECB legal conference on Thursday and Friday. Lagarde has done her best to dampen expectations of a rate hike before 2023 and has dismissed inflation as being transient. However, as other major central bankers are finding, rising inflation can only be ignored for so long.
Lagarde’s sanguine view on inflation is not shared by everybody at the ECB. Executive Board member Isabel Schnabel said in an interview this week that “risks to inflation are skewed to the upside”. This assessment wasn’t earth-shattering, but a hawkish opinion from an ECB member is very unusual and therefore newsworthy. Following her comments, the markets factored in a 0.10% rate increase in December 2022.
- EUR/USD has broken below support at 1.1201, which had held since July. This is followed by support at 1.1118
- There is resistance at 1.1415. Above, there is resistance at 1.1546
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