Euro runs out of some steam near 1.0950
- The Euro clings to daily gains vs. the US Dollar.
- European stocks trade in a mixed tone on Monday.
- The FOMC Minutes will be the salient event this week.
The Euro (EUR) now gives away part of the earlier advance to nearly three-months highs against the US Dollar (USD), prompting EUR/USD to recede to the 1.0920 region so far on Monday.
Meanwhile, the Greenback’s performance, as reflected in the USD Index (DXY), remains negative and tests the key 200-day SMA in the 103.60 region during the European morning.
The persistent downtrend in the Dollar comes amidst marginal moves in US yields across the curve, against the backdrop of increasing speculation regarding potential interest rate cuts by the Federal Reserve (Fed) in spring 2024. This speculation has been fueled by weaker-than-anticipated inflation indicators (CPI and PPI) released last week.
In the domestic docket, Producer Prices in Germany contracted 0.1% MoM in October and 11.0% over the last twelve months.
In the US, the only release of note will be the Leading Index tracked by The Conference Board.
Daily digest market movers: Euro maintains the bullish bias so far
- The EUR looks well bid against the USD early on Monday.
- US and German yields appear slightly bid.
- Markets see that the Fed will lower interest rates in the first quarter of 2024.
- Investors expect the ECB to postpone the rate hike.
- Speculation of FX intervention is prevalent in the USD/JPY market.
Technical Analysis: Euro now targets the 1.1000 threshold
EUR/USD keeps the optimism well and sound well north of 1.0900 at the beginning of the week.
Immediately to the upside for EUR/USD comes the weekly high of 1.0945 from August 30, ahead of the psychological level of 1.1000. Further north, the pair might come into contact with the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all preceding the 2023 high of 1.1275 (July 18).
Occasional bearish moves, on the other side, should meet initial support at the critical 200-day Simple Moving Avergae (SMA) at 1.0805, seconded by the temporary 55-day SMA at 1.0644. South from here emerges the weekly low of 1.0495 (October 13) prior to the 2023 low of 1.0448 (October 3).
Looking at the big picture, the pair’s prospects should remain positive as long as it trades above the 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.