Euro trims part of the early advance to 1.0700
- The Euro clings to daily gains vs. the US Dollar.
- European stocks trade with broad-based gains on Monday.
- US inflation figures will drive the market sentiment this week.
The Euro (EUR) looks to extend Friday’s optimism against the US Dollar (USD), although EUR/USD still finds it difficult to surpass the 1.0700 yardstick on a convincing fashion at the beginning of the week.
On the flip side, the Greenback runs out of steam following Friday’s ephemeral visit to weekly peaks around the 106.00 barrier when tracked by the USD Index (DXY). The divergence between recent hawkish Fedspeak and investors’ perceptions of a protracted pause in the Federal Reserve’s (Fed) normalization programme is expected to dictate the price action around the US dollar for the time being.
Around the European Central Bank (ECB), there was nothing new in recent comments from Christine Lagarde. The ECB president reiterated that inflation remains too elevated and that the bank should bring inflation down to its target in a timely fashion and maintain the current restrictive stance for a longer period.
Daily digest market movers: Euro faces some pre-CPI prudence
- The EUR comes under pressure after piercing 1.0700 against the USD.
- US and German yields face some marginal downside pressure.
- Investors expect the Fed to refrain from hiking rates in December.
- The ECB is seen entering an impasse in its tightening campaign.
- ECB’s Vice President Luis De Guindos notes domestic price pressures remain strong.
- Geopolitical effervescence remains unabated in the Middle East.
- Japan’s finmin Suzuki reiterated sudden FX moves are undesirable.
- Markets’ attention should remain on US CPI and PPI.
Technical Analysis: Euro remains supported around 1.0500
EUR/USD looks to extend the upbeat mood and retargets the key barrier at 1.0700 on Monday.
Further recovery could see EUR/USD revisit the November top of 1.0754 (November 6) prior to the 200-day Simple Moving Average (SMA) at 1.0801 and the weekly peak of 1.0945 (August 30). The psychological level of 1.1000 comes next ahead of the August high of 1.1064 (August 10) and another weekly top of 1.1149 (July 27), all preceding the year-to-date peak of 1.1275 (July 18).
If sellers regain the upper hand, the pair might initially face transitory contention at the 55-day SMA at 1.0640 ahead of the weekly low of 1.0495 (October 13) and the 2023 low of 1.0448 (October 15).
Further weakness in the pair remains on the cards while it trades below the 200-day SMA.
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).