EURUSD: parity on the horizon?A week after the US Presidential elections, markets continue to favor USDollar, in expectation of positive effects of lower tax rates. Still, many economists are noting that political promises during the presidential campaign are one thing, and what we will see in reality is completely another topic. As for economic data posted during the previous week, the US Core Inflation rate in October was standing at 3,3% on a yearly basis, while the Inflation rate was at the level of 2,6% y/y. Inflation for October was 0,2%. All figures were in line with market estimates. The Producers Price Index in October was 0,2% for the month, while core PPI was standing at 0,3%. The Retail Sales in October surged by 0,4%, which was a bit higher from market estimate of 0,3%. The US Industrial Production dipped to -0,3% in October, the same as measured on a yearly basis.
The inflation rate in Germany, final for October, was standing at 0,4% for the month, in line with market expectations. Inflation rate on a yearly basis was standing at 2%. The ZEW Economic Sentiment Index for Germany in October was standing at 7,4 a bit lower from market consensus of 13. The same indicator for the Euro Zone was 12,5, also a bit lower from the market estimate of 20,5. At the same time, industrial production in September in the Euro Zone dropped by -2% , which was higher from estimated -1,4% and bringing the total decrease of IP to -2,8% on a yearly basis.
Strengthening of the US Dollar continued for the second month in a row. The highest weekly level reached was 1,05 on Thursday trading session, while the currency pair is ending the week at the level of 1,0541. The RSI entered into clear oversold territory, from where some short term reversal might be expected in the coming period. On the other hand, MA50 is strongly diverging toward the MA200, which implies the potential for a cross in the coming period.
The strengthening of the US Dollar might easily continue in the coming period. This is supported by the relatively solid economic outlook of the US economy in the coming period, and expectations of a positive result of tax cuts in the US, at least, as per political promises from the presidential campaign. This is also one of the reasons why analysts have started to mention parity of euro and usd, however, at this moment, it might be too early to discuss this topic. For the week ahead, some short term reversal might be expected, considering that the RSI reached a clear oversold market side. Still, the demand for USD is still quite strong on the market, in which sense, only a short correction might be expected, till the level of 1,06, eventually 1,07. On the other hand, it should be expected that the market will start the week ahead by testing the 1,05 support level for one more time.
Important news to watch during the week ahead are:
EUR: Inflation rate final in October in the Euro Zone, Producers Price Index in October in Germany, GDP Growth Rate final for Q3 in Germany, HCOB Manufacturing PMI flash for November in Germany and the Euro Zone,
USD: Building Permits preliminary for October, Existing Home Sales in October, S&P Global Composite PMI flash for November, Michigan Consumer Sentiment final for November.
