EUR hurt by new lockdowns
<h4><strong>Overnight Headlines</strong></h4>
<p>*USD remains close to 16-month high on increasing European Covid infections</p>
<p>*US stocks mixed as tech and stay-at-home stocks benefit</p>
<p>*Bullish Fed comments suggest a faster pace of stimulus tapering</p>
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<p><strong>USD</strong> is close to reaching fresh cycle highs as new lockdowns loom in Europe. The recent high in DXY is 96.26. Friday’s low in EUR/USD is 1.1250, though the world’s most popular currency pair closed at 1.1290, its lowest since July. Austria has imposed its fourth national lockdown, while Germany is considering following suit. USD is near its strongest since early October versus the riskier AUD and CAD. Commodity-linked currencies are also pressured by the slump in oil. </p>
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<p><strong>US equities</strong> closed mixed with the tech-heavy Nasdaq (+0.4) outperforming the Dow (-0.8%) and S&P500 (-0.1%). Reopening and reflation trades suffered. The Nasdaq closed above 16,500 for the first time. The Dow posted its fourth losing session in the last five, wiping out the last of its November gains. Asian markets are similarly mixed. European and US futures are flat to slightly higher this morning. </p>
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<h4><strong>Market Thoughts – Busy data docket in holiday-shortened week</strong></h4>
<p>We get a slew of consumption-related economic data over the next few days. This comes after the robust figures around global goods demand last week. Eurozone consumer confidence may follow the path of the US which worried on higher inflationary pressures. The developing new European lockdowns will obviously impact going forward.</p>
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<p>The Fed’s favoured inflation measure, core PCE, is released on Wednesday along with the FOMC minutes. The former is expected to show that prices rose strongly to 4.1% from 3.6%, though this is a slower pace than the recent bumper CPI index. The RBNZ meeting will see a second-rate rise. Markets are pricing in around a 30-40% chance of a 50bp move. We also get an announcement on the next Fed chair as Jay Powell’s four-year term expires next February. It would be a big surprise if he is not reappointed.</p>
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<h4><strong>Chart of the Day – EUR down n’out</strong></h4>
<p>Rising European Covid-19 infections are forcing governments to take new containment measures. Austria has often been a leading indicator for Europe in terms of virus cases and social restrictions. This is triggering a broad risk-off repositioning with the continent in the eye of the storm. The ECB is already noticeably dovish. Further uncertainty on the impact to EU growth only reinforces their position. This comes in stark contrast to the Fed, with two officials recently calling for a faster pace of tapering.</p>
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<p>EUR is suffering everywhere, with notable lows in EUR/GBP and EUR/CHF. The latter is a key gauge of European risk and has broken below 1.05, a major level of support. EUR/USD traded to a new low for the year and remains vulnerable, though we are oversold on various indicators. Long-term trendline support sits around 1.1250. A break of this would see 1.1170. Resistance sits at 1.1291.</p>
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