Forex Trading, News, Systems and More

Euro keeps the constructive tone well in place


Share:

  • Euro extends the upside to the vicinity of 1.1040 against the US Dollar.
  • Stocks in Europe keep the mixed bias in the European afternoon.
  • EUR/USD looks to consolidate the breakout of the 1.1000 mark.
  • EMU Flash headline Inflation Rate extends its downward trend in July.
  • Germany’s Retail Sales contract 1.6% YoY in June.

The Euro (EUR) is continuing to maintain its recovery against the US Dollar (USD) that began on Friday, which is causing EUR/USD to extend its upward trend after breaking through the important 1.1000 level at the start of the week.

The pair regained momentum after hitting a low of around 1.0940 on Friday as the Greenback was undergoing a corrective move.

Currently, both US and European yields are trading with uncertainty as investors continue digesting last week’s interest rate decisions by the Federal Reserve and the European Central Bank (ECB).

Regarding the ECB, President Christine Lagarde has indicated that the central bank is keeping an “open-minded” approach to the upcoming September meeting and emphasized that the future rate decisions will depend on economic data. Similarly, Fed Chair Jerome Powell has reiterated multiple times that the Fed’s decisions on rates will be data-dependent at the FOMC event on July 26.

In terms of speculative positioning, the net longs in EUR have remained relatively unchanged in the week ending July 25, according to CFTC, which was prior to the FOMC and ECB gatherings. During this time, spot had retreated from yearly highs around 1.1275 (July 18) to the low 1.1000s.

In the Eurozone, Germany’s Retail Sales declined by 1.6% YoY in June, and the Italian Q2 GDP Growth Rate was lower than expected, with a QoQ contraction of 0.3% and YoY expansion of 0.6%. Additionally, preliminary inflation figures in the Euro area show that the Core CPI rose more than anticipated – by 5.5% YoY in July and 5.3% YoY for headline CPI. Finally, the flash Q2 GDP Growth Rate for the bloc shows that the economy expanded by 0.3% QoQ and 0.6% YoY.

There are no significant data releases scheduled in the US docket for Monday.

Daily digest market movers: Euro extends the rebound from 1.0940

  • The EUR picks up pace above the 1.1000 mark vs. the USD.
  • The USD Index treads water around 101.70 on Monday.
  • EMU flash GDP figures surprise to the upside in Q2.
  • Core inflation in the euro area remains sticky.
  • US, German yields trade without direction across all maturities.
  • The Italian economy is expected to have contracted slightly in Q2.
  • Markets’ attention is expected to be on the US labour market this week.

Technical Analysis: Euro could see its downside alleviated above 1.1150

EUR/USD manages to gather some impulse and extend the bounce off recent lows north of the 1.1000 hurdle so far on Monday.

If bears regain the upper hand, EUR/USD should put the weekly low of 1.0943 (July 28) to the test ahead of a probable move to the transitory 55-day and 100-day SMAs at 1.0908 and 1.0906, respectively. The loss of this region could open the door to a potential visit to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0723 and the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).

On the other hand, occasional bullish attempts could motivate the pair to initially dispute the weekly top at 1.1149 (July 27). Above this level the downside pressure could mitigate somewhat and  encourage the pair to test the 2023 high at 1.1275 (July 18). Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 (February 10), which is closely followed by the round level of 1.1500.

Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.