- The Euro gathers fresh upside traction against the US Dollar.
- Stocks in Europe extend the weekly losses.
- EUR/USD climbs to daily highs and trades closer to 1.0600.
- The USD Index (DXY) appears well supported by 106.00.
- Markets continue to digest Fed Chairman Powell’s comments.
The Euro (EUR) adds to Thursday’s advance against the US Dollar (USD), encouraging EUR/USD to once again approach the key 1.0600 region at the end of the week.
Meanwhile, the Greenback gives away the initial advance and returns to the low-106.00s when gauged by the USD Index (DXY) amidst some corrective retracement in US yields across the curve and some recovery in the sentiment around the risk complex.
Keeping the focus on monetary policy, investors anticipate the Federal Reserve (Fed) to retain its current stance of not changing interest rates at the November meeting, a view that was reinforced by comments from Fed’s Jerome Powell on Thursday.
Meanwhile, financial market participants are pondering the potential of the European Central Bank (ECB) discontinuing policy measures, despite inflation levels beyond the bank’s target and growing concerns about the risk of a European zone economic slowdown or stagflation.
The European calendar will be empty at the end of the week.
No data releases scheduled across the ocean either, although investors are expected to follow speeches by Cleveland Fed President Loretta Mester (2024 voter, hawk) and Philadelphia Fed President Patrick Harker (voter, hawk).
Daily digest market movers: Euro remains on track to close the week with gains
- The EUR strengthens further vs. the USD on Friday.
- US and German yields come under pressure and recede from peaks.
- Investors see the Fed keeping its interest rate unchanged in November.
- Markets expect believe the ECB to enter an impasse in its hiking cycle.
- Geopolitical fears continue to dominate the broader landscape.
- Japanese inflation rate eased to 3.0% in September.
Technical Analysis: Euro risks extra decline if 1.0500 is breached
The EUR/USD retreats from Thursday’s tops north of 1.0600 and revisits the 1.0570 zone at the end of the week.
If the bullish trend continues, EUR/USD may confront the October 12 high of 1.0639, before reaching the September 20 top of 1.0736 and the crucial 200-day Simple Moving Average (SMA) of 1.0817. A break above this level might signal a push to the August 30 peak of 1.0945 ahead of the psychological mark of 1.1000. Any more gains could put a potential test of the August 10 high of 1.1064 back on the radar prior to the July 27 top of 1.1149 and possibly the 2023 peak of 1.1275 seen on July 18.
If the selling bias returns, the 2023 low of 1.0448 from October 3 emerges as the immediate contention area ahead of the round level of 1.0400. If this region is breached, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
As long as the EUR/USD continues below the 200-day SMA, the possibility of continuous bearish pressure exists.
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).