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EUR/USD weakens after dovish Lagarde & robust US data

It looks like the ECB is far from tightening monetary policy, possibly keeping the Euro under pressure over the next months.

The EUR/USD pair slid Wednesday and dropped toward last week’s lows at 1.1550, undermined by the recent Lagarde comments and surprisingly strong US data.

The EU calendar brought only the Eurozone unemployment rate for September, which ticked lower a notch to 7.4%, down from 7.5% previously.

(Forever) Dovish Lagarde

Traders paid attention to Christine Lagarde’s speech, who said that despite the current inflation surge, the outlook for inflation over the medium term remains subdued. Therefore, even after the expected end of the pandemic emergency, it will still be important that monetary policy – including the appropriate calibration of asset purchases – supports the recovery and the sustainable return of inflation.

It looks like everybody sees inflation everywhere, yet the central banks remain oblivious to rising prices in every sector of the economy. The Fed keeps the same rhetoric, although the US central bank is expected to start tapering its asset purchases this month.

US data helping greenback

From the US macro calendar, the ADP employment change for October surprised on the upside and printed 571,000 , above expectations of 400,000. The previous month was revised lower from 568,000 to 523,000.

The labor market showed renewed momentum last month, with a jump from the third quarter average of 385,000 monthly jobs added, marking nearly 5 million job gains this year, said Nela Richardson, chief economist at ADP

Additionally, the ISM’s Services survey soared to 66.7, rising to a new record high and smashing expectations of 62.0 . It was also well above the 61.9 scored in September.

Services print is back above the Manufacturing print. The divergence is evident between Services activity (improving) and Manufacturing output (weakening). Additionally, in response to a further rise in costs, firms raised their selling prices at the fastest rate on record.

While the service sector is seeing a waning impact from the pandemic, it’s a different story in manufacturing, where the supply crisis continues to cause havoc and dampen production growth. Supply delays worsened in October, which has in turn fed through to a further intensification of inflationary pressures, Chris Williamson, Chief Business Economist at IHS Markit said.

The daily chart looks choppy and without a clear trend, with the medium-term descending trend intact as long as the pair trades below 1.1660 . Significant support is in the 1.1530 – 1.1560 area, and if the euro drops to new lows, the downtrend could be confirmed, targeting the 1.15 threshold.

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