EURUSD back near 1.17 as renewed worries on Fed independence weigh on the US Dollar

FUNDAMENTAL
OVERVIEW

USD:

The greenback weakened
across the board today following the news of the US Department of Justice
subpoenaing the Federal Reserve in an unprecedented move that escalates the
ongoing conflict between President Trump and Fed Chair Powell for not lowering
interest rates faster.

The official reason is that
the DOJ is focusing on the Federal Reserve headquarters renovation to see
whether Powell made misleading or false statements to the Senate Banking
Committee regarding the scale, costs and luxury features of the project.

In reality, everybody knows
that this is just a political pretext to intimidate the Fed Chair and force him
to cut interest rates faster. We have already seen this kind of intimidation
with Fed Governor Cook last year when Trump tried to fire her for cause without
success as we continue to await the US Supreme Court decision on that case.

The US Dollar sold off on
the news because a potential loss of Fed independence increases the risk of uncontrolled
inflation in the future leading to a debasement. The probability of the loss of
Fed independence remains very low though as the consequences would be too big
not only for the US but the global economy as a whole.

Tomorrow, we have the US
CPI report and that could be a major market-moving release. A hot report will
likely trigger some hawkish repricing in interest rate expectations and support
the US Dollar. On the other hand, soft data should keep the market on expecting
at least two rate cuts by the end of the year potentially weighing on the
greenback further. The outlook for the USD remains neutral to bearish.

EUR:

On the EUR side, the ECB remains
in a neutral stance reaffirming its data-dependent and meeting-by-meeting
approach to policy decisions. ECB members have repeatedly said that the current
policy is appropriate, and they won’t respond to small or short-term deviations
from their 2% target. Moreover, they added that the next moves could be either
a cut or a hike. The data has been supporting the central bank’s neutral stance,
with inflation data last week surprising to the downside. The outlook for the euro remains neutral.

EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that EURUSD jumped today following the news of the US DOJ subpoenaing the Federal
Reserve in relation to the Fed’s headquarters renovation. The price is
approaching the key resistance around the 1.17 handle where we can also find
the downward trendline for confluence.

That’s where we can expect
the sellers to step in with a defined risk above the trendline to position for
a drop into new lows. The buyers, on the other hand, will want to see the price
breaking higher to increase the bullish bets into the 1.18 handle next.

EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can
see more clearly the reaction to the DOJ news with a strong rally that erased
most of last week’s dollar gains. There’s not much else we can glean from this
timeframe as the sellers will have a better risk to reward setup around these
levels to keep targeting new lows, while the buyers will need a breakout to open
the door for new highs.

EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME

On the 1 hour chart, we can see that the price is trading at the upper
bound of the average daily range for today. In such instances, we can generally
see some consolidation or a pullback before the next move.

UPCOMING CATALYSTS

Tomorrow we have the US CPI report. On Wednesday, we get the November US
Retail Sales and US PPI reports, so it’s going to be old data. We also have a
potential US Supreme Court decision on Trump’s tariffs. On Thursday, we get the
latest US Jobless Claims figures.