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Euro extends the optimism and approaches 1.0900


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  • The Euro reverses the initial pessimism vs. the US Dollar.
  • Stocks in Europe keep the mixed note so far on Wednesday.
  • EUR/USD now refocuses on the 1.0900 hurdle and above.
  • The USD Index (DXY) surrenders gains and retreats to 103.50.
  • US, German yields rebound modetly ahead of key data results.
  • Inflation in Spain picked up pace in August at 2.6% YoY.
  • Consumer Confidence in the euro area worsened to -16.1 in August.

The Euro (EUR) manages to reverse earlier losses vs. the US Dollar (USD), encouraging EUR/USD to regain upside traction and retarget the round level of 1.0900 during the European midday on Wednesday.

On the flip side, the Greenback succumbs to the persistent selling pressure and adds to Tuesday’s data-led sharp pullback, motivating the USD Index (DXY) to return to the 103.50/45 band midweek. The dollar’s price action remains accompanied by a mild bounce in US yields across different maturities.

In the meantime, the Federal Reserve’s (Fed) tighter-for-longer approach now appears somewhat dented in response to recent data releases, which also pour cold water over expectations of a 25 bps rate hike at the November 1 gathering.

By contrast, there is no news around the European Central Bank (ECB) regarding its potential decision on rates once the summer season is over.  

Data-wise in the region, flash inflation figures in Spain see the CPI rising 2.6% in the year to August, while Consumer Confidence in Italy receded a tad to 106.5 and eased to -16 when it comes to the broader euro area. Later in the session, all the attention is expected to be on the publication of the advanced inflation figures in Germany for the current month.

In the US, investors’ attention will be on the release of the ADP report, followed by another estimate of the Q2 GDP Growth Rate, Pending Home Sales and flash Goods Trade Balance figures.

Daily digest market movers: Euro shifts its focus to the 1.0900 barrier

  • The EUR resumes the weekly uptrend vs. the USD.
  • German and US bond yields pick up some fresh upside traction.
  • Market participants will now shift their focus to the ADP results.
  • JOLTs Job Openings dropped to the lowest level since March 2021 in July.
  • The Fed’s tighter-for-longer narrative seems to be losing momentum.
  • Investors see the Fed on hold for the remainder of the year.
  • Further stimulus measures are likely to be taken by the PBoC in the near term.
  • BoJ’s Tamura favoured the current loose monetary conditions.

Technical Analysis: Euro now looks at 1.0930

EUR/USD’s weekly recovery faltered just ahead of the 1.0900 figure on Tuesday. The current upside momentum could leave further room for extra gains in the short term.  

In case bulls push harder, EUR/USD is expected to face a minor resistance level at the weekly high of 1.0930 (August 22), which also appears reinforced by the provisional 100-day SMA. Further up comes the interim 55-day SMA at 1.0967, prior to the psychological 1.1000 barrier and the August top at 1.1064 (August 10). Once the latter is cleared, spot could challenge the weekly peak at 1.1149 (July 27). If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 (July 18). Further up comes the 2022 high at 1.1495 (February 10), which is closely followed by the round level of 1.1500.

The resumption of the downward bias could motivate the pair to revisit the August low of 1.0765 (August 25) ahead of the May low of 1.0635 (May 31) and the March low of 1.0516 (March 15). The loss of this level could prompt a test of the 2023 low at 1.0481 (January 6) to re-emerge on the horizon.

Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA (1.0810) is breached in a convincing fashion.

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.