EUR/USD slips back towards 1.1300 in holiday-thinned trade ahead of raft of US data releases

• EUR/USD is on course to snap a three-day win streak as it drops back towards 1.1300.
• One source of potential volatility later in the session could be the release of a raft of US data.

EUR/USD looks on course to snap a three-day win streak on Thursday as downwards dollar momentum subsides. The pair probed Wednesday’s weekly highs above 1.1340 during Asia Pacific trade but has since dropped back towards the 1.1300 level, where is now trades lower by a modest 0.2% on the session. That still leaves the pair up about 0.6% on the week, but EUR/USD has unsurprisingly faltered before testing December highs in the 1.1360 area. Analysts and FX strategists had been expecting that in the run up to Christmas and New Year’s holidays, amid thinned liquidity conditions, the pair, as with of FX majors, would struggle to break out of recent ranges.

For now, this seems to have been the case and trading volumes for EUR/USD have been much lower than on a usual session thus far this Thursday. One source of potential volatility later in the session could be the release of a raft of US data. November Durable Goods Orders, November Core PCE (the Fed’s favoured inflation guage), November Personal Income and Spending and the latest weekly initial jobless claims report are all out at 1330GMT. Then, the final version of the University of Michigan’s December Consumer Sentiment survey is released at 1500GMT alongside November New Home Sales numbers.

According to analysts at MUFG, “while the recent improvement in risk sentiment on the back of reduced Omicron fears is currently weighing on the U.S. dollar, we expect the correction lower to prove shortlived”. “Hawkish comments from Fed officials over the past week including from Fed Governor Waller and San Francisco Fed President Daly have signaled that they are considering raising rates as soon as the March FOMC meeting” the bank noted.

Indeed, expectations that the dollar will regain some poise and push higher in the new year amid an increasingly hawkish Fed and underlying strength in the US economy seems to be a consensus viewpoint amongst FX strategists right now. The fact that the DXY, though lower on the week, continues to trade comfortably within its December ranges and remains on course for substantial on-the-year gains of nearly 7.0% suggests that, from a technical perspective, long-term bullish momentum remains solid.