Dear Traders,
The U.S. dollar remained well bid against the euro and British pound Tuesday. Eurozone consumer prices failed to show any increase, hence the inflation rate remains far below the ECB's 2 percent target, a fact that should keep the euro under pressure. The EUR/USD has broken below its key support at 1.08, and subsequently slid all the way down to 1.0710. The GBP/USD headed for a test of its next support zone around 1.4635 and not even a stronger U.K. construction PMI report was able to stop sterling from trending downwards. If we will see further downward momentum remains to be seen and could depend on today's U.S. economic data.
The focus will be on ADP employment change and ISM Non-Manufacturing Composite, reports which could give us a foretaste of the payrolls report on Friday. ADP jobs are expected to show softer numbers and if that is true, the dollar could experience a correction. Furthermore, the Federal Reserve releases minutes from the FOMC December meeting today at 19:00 GMT. Investors are looking for clues on how confident policy makers are that they will be able to raise interest rates two-to-five times this year. There are speculations that the central bank will raise rates only two times in 2016, which could have a short-term negative impact on the dollar.
If the minutes reveal more details than what Fed chair Janet Yellen said in her FOMC press conference, we could see a strong move in the greenback. On the other hand, if there will be no new insights about the future tightening cycle, the minutes could turn out to be a non-event.
Important data to watch today:
9:30 UK Services PMI
13:15 USA ADP Employment Report
15:00 USA ISM Non-Manufacturing
19:00 USA FOMC Minutes
(Timezone GMT)
EUR/USD
Currently we will focus on three different price levels. Since the euro broke below the important support at 1.08, we see a lower hurdle at 1.07 before the euro is poised to free-fall towards 1.0550/30. A sustained break below 1.07 could drive the pair towards 1.0525, and based on a lower support line, it could even go lower towards 1.0340/1.03. But for the time being, the focus should be on the 1.0530-support. On the topside, we will focus on the resistance line, which is currently at 1.0925. Any pullbacks could be limited until that line. The sentiment remains bearish as long as the pair trades below 1.10/1.1050.
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