Euro waits for key US data around 1.0850
- The Euro’s rebound remains capped near 1.0860 against the US Dollar.
- Stocks in Europe show some weakness ahead of data.
- The USD Index (DXY) keeps the familiar range near 103.50.
- No surprises from the final Manufacturing PMIs in Germany, Eurozone.
- Markets wait for US Nonfarm Payrolls, ISM manufacturing.
The Euro (EUR) manages to regain some composure against the US Dollar (USD) following an earlier drop to 1.0830, helping EUR/USD to retake the 1.0850/60 band at the end of the week.
The modest advance in the pair comes in line with the slightly offered stance in the Greenback. The USD Index (DXY), which tracks the US Dollar against a basket of six other major currencies, gyrates around the 103.50 zone amidst the lack of a clear direction in US yields across different maturities.
In the meantime, investors continue to reprice a pause by the Federal Reserve in its tightening campaign. The upcoming release of the Nonfarm Payrolls for August should lend further insight into this view.
Back to the European Central Bank (ECB), there is a great deal of uncertainty regarding the potential steps beyond the summer amidst a pretty divided Governing Council and rising speculation that a stagflation scenario could be brewing in the region.
Data-wise, final Manufacturing PMIs in Germany and the broader euro area came in at 39.1 and 43.5, respectively, for the month of August. The readings, which signal a persisting contraction in factory activity, were broadly in line with the preliminary estimates.
Later in the American session, Nonfarm Payrolls, Unemployment Rate and the ISM Manufacturing PMI will take the centre stage. Construction Spending and the final S&P Global Manufacturing PMI data for the US will also be published.
Daily digest market movers: Euro wobbles around 1.0850 prior to NFP
- The Euro gathers some strength against the USD.
- Final PMIs in Europe broadly matched the preliminary prints.
- China’s Caixin Manufacturing PMI returned to expansionary territory.
- The PBoC reduced the FX RRR to 4% to support the Chinese yuan.
- Investors’ focus shifts to NFP, ISM Manufacturing.
- Investors see the Fed on hold for the remainder of the year.
Technical Analysis: Euro risks another test of 1.0765
EUR/USD regains some upside traction following Thursday’s strong pullback and three-day lows near 1.0830.
In case bulls regain the upper hand and EUR/USD surpasses Wednesday’s weekly top of 1.0945, the pair is expected to meet the provisional 55-day Simple Moving Average (SMA) at 1.0965 prior to the psychological 1.1000 barrier and the August 10 monthly top at 1.1064. Once the latter is cleared, spot could challenge July’s 27 peak at 1.1149. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 seen on July 18. Further up comes the 2022 high at 1.1495, which is closely followed by the round level of 1.1500.
The resumption of the downward bias could motivate the pair to initially test the key 200-day SMA at 1.0815 ahead of the August 25 low of 1.0765. The breach of the latter exposes the May 31 low of 1.0635 prior to the March 15 low of 1.0516 and the 2023 low at 1.0481 recorded on January 6.
Sustained losses are likely in EUR/USD once the 200-day SMA is breached in a convincing fashion.
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).