Friday, 21 December 2018 · *EUR/USD closed above the 55-day EMA yesterday, confirming a bull breakout.*
· *Political turmoil in Washington will likely keep the USD on the backfoot.*
· *The pair will likely scale the immediate hurdle of 100-day EMA if the US GDP and core PCE disappoints expectations.*
The EUR/USD closed above the 55-day exponential moving average (EMA) yesterday, confirming a bullish-to-bearish trend change.
The EMA caught highs on a closing basis in October, November and earlier this month. Hence, the EUR bulls may be feeling emboldened.
*Turmoil in Washington likely to keep USD under pressure*
The House Republicans have approved $5 billion for Trump's wall. Democrats, however, have the Senate votes to block any bill that includes funding for Trump’s wall and more importantly, Trump isn't open to compromise. So, the probability of government shutdown is high.
The European FX desks, therefore, may continue to offer the US dollar ahead of the key data releases in the US.
*Focus on GDP and core PCE*
Markets never believed Fed's hawkish dot plot of September, which predicted three rate hikes in 2019. The central bank now plans to raise rates only two times next year. The markets aren't buying that either.
Moreover, their belief that the US central bank would pause rate hikes in 2019 would be reinforced if the US third-quarter GDP is revised lower from the preliminary estimate of 3.5 percent. A below-forecast core personal consumption expenditure (PCE) - Fed's preferred measure of inflation - would also cement expectations of a rate hike pause in 2019, leading to a broad-based USD sell-off.
EUR/USD, however, may find it hard to scale the 100-day EMA of 1.1486 if the US data better estimates and the political tensions in Washington subside.
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