Euro shrugs as German confidence jumps

The euro is drifting in the Tuesday session. Currently, EUR/USD is trading at 1.1590, up 0.03%.

German Economic Sentiment rebounds

German ZEW Economic Sentiment impressed in November, accelerating from 22.3 to 31.7. The index had been on a long slide since May, when it stood at a lofty 84.4 points, so the first rise in six months is significant. Financial market experts are optimistic about economic conditions in the next six months and expect growth to expand, but also expect high inflation levels to ease. The eurozone release was similar to what we saw in Germany, climbing from 21.0 to 25.9, also its first rise since May. The euro didn’t gain any ground despite the strong ZEW Economic Sentiment reports. This could be a reflection of growing concern over surging Covid cases across Europe and the potential return of health restrictions.

Investors will be listening carefully as ECB President Christine Lagarde speaks at an ECB forum. The ECB remains in dovish mode and Lagarde reiterated last week that the ECB had no plans to raise rates prior to 2023. The November ZEW Economic Sentiment releases, which project that inflation will ease, is in sync with the ECB’s position that high inflation is temporary and will cool off.

The dovish stance of the ECB is weighing on the euro, as are tensions over Brexit. Specifically, the UK wants to reopen the Northern Ireland Protocol and change the trade rules affecting the movement of goods between Northern Ireland and the rest of the UK. Prime Minister Johnson has threatened to suspend the Protocol if no agreement is reached with the Europeans. Such a move would certainly trigger retaliation from the EU and could shake up the euro and the pound.

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EUR/USD Technical

• There are resistance lines at 1.1618 and 1.1669
• 1.1515 is the next support level. Below, we find support at 1.1463

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