- EUR/USD consolidates around 1.0300 on Thursday, with a quiet trading day in terms of economic data.
- The bond market is under pressure, as UK Gilt yields surge amid rising inflation concerns.
- Markets grow increasingly anxious over President-elect Donald Trump’s extensive fiscal spending, proposed reforms, and tariff plans.
The EUR/USD pair remains under pressure, consolidating around 1.0300 on Thursday. The recent dip comes as markets grow increasingly concerned about the wide-ranging measures, reforms, spending, and tariff proposals announced by President-elect Donald Trump ahead of his inauguration on January 20. This has led to a further rise in US yields this week.
Meanwhile, UK Gilt yields are facing a mini-crisis, with long-term UK borrowing costs surging in recent days. The British Pound (GBP) has also weakened, signaling a potential loss of investor confidence in the government's ability to manage national debt and control inflation.
Daily Digest Market Movers: Inflation Uncertainty
- US stock markets will remain closed on Thursday in observance of a National Day of Mourning for former President Jimmy Carter. The bond market will operate on a shortened schedule, closing early.
- Economic data released earlier on Thursday revealed that German imports fell by 3.3% in November, while exports rose by 2.1%.
- European Central Bank (ECB) Executive Board member Piero Cipollone cautioned in an interview with Corriere della Sera that excessive concern over potential inflation shocks could be detrimental to the economy, according to Bloomberg.
- ECB Governing Council member François Villeroy de Galhau stated on Wednesday that the ECB should continue lowering borrowing costs at each meeting as long as the inflation slowdown aligns with its projections, Reuters reported.
- German Bund yields rose further, hitting a new six-month high of 2.571%, not far from the 2.642% peak seen in July 2024.
- European equities are trading in the red, mirroring the downbeat sentiment in Asia.
Technical Analysis: Growing Concerns Over Inflation
Concerns are mounting as inflation becomes a key focus for traders positioning themselves in the market. This suggests that the US Dollar (USD) will likely see continued support, with US yields rising and further widening the rate differential gap between the Eurozone and the US.
For EUR/USD to recover, the first target would be a move toward 1.0448, the low of October 3, 2023. A break above this level would bring the 55-day Simple Moving Average (SMA) at 1.0539 into focus. However, another catalyst would be necessary to drive this move, potentially squeezing Dollar bulls.
On the downside, the two-year low of 1.0224, reached on January 2, is now the key level to watch, with the 1.0294 level losing its significance this week. A move below the 1.02 level would mark a fresh two-year low. Breaking below this threshold could pave the way for a push toward parity, with 1.0100 acting as the last significant support before the psychological 1.00 level.
