Euro poised to extend the recovery north of 1.0700
- The Euro picks up extra pace against the US Dollar.
- Stocks in Europe trade mostly with gains so far on Tuesday.
- EUR/USD finally surpasses the 1.0700 barrier.
- The USD Index (DXY) breaks below the 105.00 support.
- The FOMC meeting on Wednesday will be the salient event this week.
- The US housing sector takes centre stage later in the US calendar.
The Euro (EUR) manages to improve its performance against the US Dollar (USD), motivating EUR/USD to surpass the key barrier at 1.0700 the figure on Tuesday.
The Greenback remains under further selling pressure and puts the key 105.00 support to the test when tracked by the USD Index (DXY), in the context of a marginal uptick in US yields across the curve and prudence prior to the Federal Reserve (Fed) meeting on Wednesday.
In terms of monetary policy, investors are still evaluating the dovish rate hike implemented by the European Central Bank (ECB) last week. Furthermore, they maintain their anticipation of potential interest rate cuts by the Fed taking place at some point in the second quarter of 2024.
In the Euro’s data space, the Current Account surplus in the eurozone shrank to a seasonally adjusted €20.9 billion in July, while final inflation figures for August saw the headline CPI rise 5.2% from a year earlier and 5.3% YoY when it comes to the Core CPI (excluding energy and food costs).
In the US, the housing sector will be in the spotlight as Housing Starts and Building Permits data for the month of August are due.
Daily digest market movers: Euro gathers steam on USD selling
- The EUR regains extra pace against the USD.
- US and German yields edge marginally higher so far on Tuesday.
- Markets widely anticipate the Fed to keep rates unchanged.
- According to RBA Minutes, there was a strong consensus to hold rates.
- Investors continue to price in potential rate cuts by the Fed in H1 2024.
- An impasse in the ECB’s hiking cycle appears to be gathering traction.
- ECB’s Francois Villeroy said the deposit rate could be at 4.0% for as long as needed.
- OECD sees the Chinese economy expanding 5.1% in 2023 (from 5.4%).
Technical Analysis: Euro faces an immediate target at 1.0767
EUR/USD appears to be gaining strength and moving towards the 1.0700 level, but it is important for the pair to quickly surpass the 200-day SMA at 1.0828 in order to alleviate some of the recent bearish sentiment.
In the event that the EUR/USD breaks under its September 14 low of 1.0631, there is a possibility that it may revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 from January 6.
On the upside, the focus is on the critical 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could potentially lead to a bullish momentum. This could result in a test of the provisional 55-day SMA at 1.0919, seconded by the August 30 high of 1.0945. If this scenario unfolds, it may open the way for a rally towards the psychological level of 1.1000 and the August 10 top of 1.1064. Further upside movement could see the pair aiming for the July 27 peak at 1.1149, ahead of the 2023 high at 1.1275 seen on July 18.
However, as long as the EUR/USD remains below the 200-day SMA, there is a possibility that the pair may continue to experience downward pressure.
German economy FAQs
The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany’s economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany’s economy strengthens, it can bolster the Euro’s value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro’s strength and perception in global markets.
Germany is the largest economy in the Eurozone and therefore an influential actor in the region. During the Eurozone sovereign debt crisis in 2009-12, Germany was pivotal in setting up various stability funds to bail out debtor countries. It took a leadership role in the implementation of the ‘Fiscal Compact’ following the crisis – a set of more stringent rules to manage member states’ finances and punish ‘debt sinners’. Germany spearheaded a culture of ‘Financial Stability’ and the German economic model has been widely used as a blueprint for economic growth by fellow Eurozone members.
Bunds are bonds issued by the German government. Like all bonds they pay holders a regular interest payment, or coupon, followed by the full value of the loan, or principal, at maturity. Because Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are viewed as a solid, risk-free investment as they are backed by the full faith and credit of the German nation. For this reason they are treated as a safe-haven by investors – gaining in value in times of crisis, whilst falling during periods of prosperity.
German Bund Yields measure the annual return an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay holders interest at regular intervals, called the ‘coupon’, followed by the full value of the bond at maturity. Whilst the coupon is fixed, the Yield varies as it takes into account changes in the bond’s price, and it is therefore considered a more accurate reflection of return. A decline in the bund’s price raises the coupon as a percentage of the loan, resulting in a higher Yield and vice versa for a rise. This explains why Bund Yields move inversely to prices.
The Bundesbank is the central bank of Germany. It plays a key role in implementing monetary policy within Germany, and central banks in the region more broadly. Its goal is price stability, or keeping inflation low and predictable. It is responsible for ensuring the smooth operation of payment systems in Germany and participates in the oversight of financial institutions. The Bundesbank has a reputation for being conservative, prioritizing the fight against inflation over economic growth. It has been influential in the setup and policy of the European Central Bank (ECB).