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EUR/USD falls as German PPI plunges & on safe haven USD demand. Oil falls on China COVID fears.
 

EUR/USD falls as German PPI plunges & on safe haven USD demand

EUR/USD is heading lower after the German PPI unexpectedly plunged to 34.5% YoY in October, down from 45.8% YoY in September and well below the 41.5% forecasts. The drop in PPI is mainly owing to falling electricity and natural gas prices.

Given that PPI is a lead indicator for CPI, could peak inflation be close? CPI inflation sits at a record high of 10.6% YoY. ECB’s Christine Lagarde warned that interest rates may need to rise higher to rein in inflation and that recession risks are rising.

Meanwhile, the USD is benefitting from sage haven flows as COVID cases in China ramp up. The USD has fallen in recent weeks as cooler inflation data raised optimism of a dovish pivot from the Federal Reserve. However, last week hawkish comments from Fed speakers such as James Bullard boosted the buck.

Fed speakers suggest that rate hikes could slow, but they are likely to continue for longer, increasing the peak fed fund rate.

There is no high-impacting US economic data due today. Later in the holiday-shortened week, the minutes to the FOMC will be in focus.
 

Where next for EUR/USD?

After running into resistance at 1.0480 last week’s high, EUR/USD is heading lower, bringing support at 1.01870, the September high, into focus. A breakthrough here opens the door to 1.0100, the October high.

While the RSI remains in bullish territory, buyers could be encouraged; resistance can be seen as 1.0480 to create a higher high. This could open the door to 1.0625.

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Oil falls on China COVID fears

Oil dropped just shy of 10% last week and is heading lower this week as COVID cases in China jump. China has registered a record spike in cases fueling fears, resulting in more curbs being implemented in economic hubs such as Beijing and Shanghai.

The jump in cases comes after data last week highlighted the slowdown in economic growth in China, the world’s largest oil importer.

Several Chinese refiners have reportedly requested to reduce supply from Saudi Aramco in December.

Meanwhile, recession fears also hurt the demand outlook for oil after comments from Fed speakers suggested that rate hikes could go on for longer than initially anticipated.

Looking ahead, the European ban on Russian oil could provide a tailwind for oil heading into December.
 

Where next for oil prices?

After hitting resistance at 93.10 in early November, the price has rebounded lower, falling below the rising trendline dating back to late September and the 50 sma. The RSI is below 50 supporting further downside.

Sellers will look for a fall below 77.60 last week’s low to create a lower low. Below here, 76.16 will come into play the September low.

Buyers could look for a rise over 81.25, the October 17 low, with a rise above here exposing the 50 sma 85.90 ahead of 89.15, the 100 sma.

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