EUR/USD advances ahead Eurozone Services data, ECB Lagarde’s speech

EUR/USD has resumed its bullish trend on Wednesday, reaching levels right above 1.1640 at the time of writing. The sticky Eurozone consumer inflation data seen on Tuesday, a somewhat improved market mood, and hopes that the US Federal Reserve (Fed) will accelerate its monetary easing cycle in the upcoming months are lifting the Euro (EUR) and keeping the US Dollar (USD) on the defensive.

During the European session, the main focus will be on November’s final Eurozone HCOB Services Purchasing Managers Index, which is expected to confirm a healthy expansion of the sector’s business activity. Later on, investors’ attention will shift to ECB President Christine Lagarde’s speech.

In the US, the ADP Employment Change, due later in the day, is expected to add to evidence of a stalled labour market, increasing pressure on the Fed to adopt a less restrictive monetary policy. At a later time, the ISM Services PMI is expected to show a moderate slowdown of the sector’s activity.

Daily Digest Market Movers: The Euro appreciates further on risk-on markets

• An improved market sentiment is providing some support to the Euro on Wednesday. Asian stock markets have been mixed, but European and Wall Street stock futures are positive. Precious metals have pulled back from highs, and the US Dollar remains on the defensive.
• Investors are pricing an 85% chance that the Fed will cut interest rates by 25 basis points next week, and a high probability that the White House adviser Kevin Hassett will replace Chairman Jerome Powell and ease monetary policy further next year. The monetary policy divergence between the Fed and the ECB, which is at the end of its easing cycle, has boosted the EUR/USD by more than 1% in an eight-day rally.
• In the Eurozone economic calendar, HCOB PMI data is expected to confirm that services activity accelerated to 53.1 in November from 53.0 in October. The Composite PMI, however, is expected to ease to 52.4 from 52.5 in the previous month, yet remain at levels consistent with solid growth.
• Later on, ECB President Cristine Lagarde will speak at the European Parliament, where she will likely reiterate that the current monetary policy is appropriate and that interest rates will remain at current levels for some time.
• In the US, November’s ADP Employment Change report is expected to show a net gain of 5,000 jobs, below the 42,000 jobs seen in October. These figures are likely to increase concerns about the labour market and feed investors’ hopes of immediate Fed interest rate cuts.
• The US ISM Services PMI is expected to show that activity slowed down to 52.1 in November, from 52.4 in October. The market will closely analyze the new orders, employment, and prices sub-indices for a better assessment of the sector’s health.

Technical Analysis: EUR/USD breaks trendline resistance, aims for 1.1670

EUR/USD has finally broken and confirmed above the top of the descending channel, and is trending higher. The Relative Strength Index (RSI), at 66, is approaching overbought levels on the 4-hour chart but not yet there, while the Moving Average Convergence Divergence (MACD) indicator is taking off from the zero level, suggesting a moderate bullish momentum.

Immediate resistance lies at the 1.1660-1.1670 area, where bulls were capped on October 28 and 29, and November 13 and 14. Further up, the next target is the October 17 high, right below 1.1730. On the downside, the reverse trendline at 1.1605 and Tuesday’s low at 1.1590 are likely to challenge bears ahead of the 1.1550 area (near November 26 and 28 lows), and the 1.1500 psychological level.