- Euro exceeds the 1.1080 level against the US Dollar on Fed day.
- Stocks in Europe en route to another negative close on Wednesday.
- EUR/USD targets the 1.1100 barrier in the very near term.
- Consumer Confidence in France held steady at 85 in July.
- The FOMC event, Powell presser will take centre stage later in the session.
The Euro (EUR) manages to recover some ground against the US Dollar (USD) and prompts EUR/USD to regain the 1.1080 region after bottoming out at Tuesday’s two-week lows around 1.1020.
The pair gains momentum and leaves behind the recent bearish trend over several sessions, targeting the key 1.1100 barrier in the very near term against the backdrop of the Greenback’s renewed selling pressure and mixed performance of yields on both sides of the Atlantic.
The most significant event of the session is the widely anticipated interest-rate hike of 25 basis points (bps) by the Federal Reserve (Fed). However, the subsequent press conference by Chair Jerome Powell became increasingly important amidst growing speculation that the Fed might end its tightening campaign sooner than expected. This speculation appears underpinned by disinflationary pressures in the US and some signs of cooling in the labour market.
Meanwhile, investors are closely watching the European Central Bank (ECB), with expectations of another quarter percentage point rate hike on Thursday. The interest in the potential next steps of the central bank has been on the rise in past weeks.
Regarding the monetary policy approach, the Fed seems to be approaching the end of its rate-hiking cycle, suggesting a possible pause or slowdown in the future. On the other hand, some ECB officials recently expressed less hawkish views on the likelihood of further rate hikes beyond the summer.
In the domestic docket, Consumer Confidence in France remained steady at 85 for the current month.
Across the Atlantic, MBA Mortgage Applications dropped 1.8% in the week to July 21, while June New Home Sales are expected later in the US docket.
Daily digest market movers: Euro maintains the positive mood ahead of Fed
- The EUR trades with decent gains against the USD.
- The USD Index manages well to keep the trade above the 101.00 zone.
- Investors expect both the Fed and the ECB to raise rates this week.
- US, German yields trade in a mixed note ahead of the Fed gathering.
- Investors’ attention is expected to be on Powell’s press conference.
Technical Analysis: Euro risks a test of 1.0900 if 1.1000 is cleared
EUR/USD regains strength and looks to retest the 1.1100 neighbourhood on Wednesday.
Further downside, EUR/USD should meet immediate contention at Tuesday’s weekly low of 1.1020 ahead of the psychological 1.1000 mark, all seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMA) at 1.0901 and 1.0895, respectively. The loss of this region could open the door to a potential visit to the July 6 low of 1.0833 ahead of the key 200-day SMA at 1.0706 and the May 31 low of 1.0635. South from here emerges the March 15 low of 1.0516 before the 2023 low of 1.0481 on January 6.
On the upside, the next hurdle appears at the 2023 high at 1.1275 reached on July 18. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the key 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).
