EURUSD poised to extend downside trend after dovish German inflation report

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Buying pressure in equity markets remained subdued on Tuesday, as cyclical stocks dipped on a worsening global economic outlook. The massive protests in China against the severe lockdowns and the continued increase in new Covid cases was one big step back on the road to the reopening of the Chinese economy. Fed Bullard’s comments yesterday halted the rise in bond yields as he said markets were underestimating the risk that the Fed would continue to aggressively tighten monetary policy. Williams and Loretta Mester, two other Fed officials, made more centrist statements, suggesting the Fed could start cutting rates in 2024, while more tightening is needed soon. The Dallas Fed manufacturing index rose from -19.4 to -14.4 in November. Pre-market inflation expectations in the US fell to their lowest level in a month amid a sell-off in commodity markets: Market rumors that OPEC will decide to cut production at the December 4 meeting appear to offset risks of a demand blow from China. Spot WTI and Brent rebounded 3% today. The indicator of economic sentiment in the EU rose slightly compared to the previous month, mainly due to a rebound in consumer confidence. Manufacturing sentiment fell from -1.2 to -2 in November, the lowest level since January of last year. Companies reported a sharp decline in production trends as new orders continued to decline. Manufacturing expectations improved marginally, thanks to the normalization of supply chains. In the services sector, the demand indicator continued to decline, but the pace slowed. The retail sector has seen some recovery in demand and has an optimistic outlook on near-term growth prospects. Inflation in Germany slowed to 10% against the forecast of 10.4%, on a monthly basis, deflation was 0.5%, which was the sharpest monthly slowdown. as of November 2020, the report published on Tuesday showed: Overall, the economic state of the EU indicates the beginning of a mild recession. However, the ECB said earlier that a slight recession would not be enough to lower inflation. With supply chains normalizing, inflation expectations falling and recession risks rising, the ECB is likely to opt for a 50 bps hike in December. With some investors still pricing in a 75 basis point rate, this result would be disappointing for the market and could trigger a bearish reaction in EURUSD. EURUSD fell today after the release of the inflation report by 50 points, from 1.0370 to 1.0320: The pair looks set to extend the downtrend and break below the 1.03 level according to Powell’s remarks, due to a speech on Wednesday, and the NFP report due on Friday . . Key short-term support levels are seen at the November 21-21 low of 1.0250 and 1.02.

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