- Euro gives away part of the earlier gains against the US Dollar.
- Stocks in Europe cling to daily losses so far on Monday.
- EUR/USD enters its fourth consecutive week with gains.
- Mixed Chinese economic data seem to have bolstered the risk appetite.
- The NY Empire State index will be next on tap on the US calendar.
The Euro (EUR) extends its recent gains against the US Dollar (USD), driving the EUR/USD pair to fresh year-to-date peaks around 1.1250 at the beginning of the week. The move, however, seems to have fizzled out somewhat as the Greenback managed to trim part of those losses.
In the meantime, spot keeps the trade in the area of yearly highs well north of 1.1200 on the back of the resumption of the selling pressure around the Greenback, all against the backdrop of diminishing US yields across the curve and steady consensus around another 25 basis points interest-rate hike by the Federal Reserve and the European Central Bank (ECB) later this month.
The possibility that the Fed may be nearing the end of its tightening campaign contributes to the lack of traction in the Greenback. This view has gained momentum recently, as there are indications of cooling US consumer prices and a persistent downward trend in producer prices.
Markets have already largely priced in the expected 25 bps rate hike by both the ECB and the Fed. However, there is still much discussion about the potential future actions of these central banks as they work to normalize their monetary policies, particularly with growing concerns about a possible economic slowdown on both sides of the Atlantic.
According to the latest CFTC Positioning Report, net longs in EUR dropped to around 140.1K contracts in the week ending on July 11, which is the lowest level seen since mid-March.
In the US calendar, the NY Empire State manufacturing gauge will be the sole release on Monday.
Daily digest market movers: Euro looks firm past the 1.1200 hurdle
- The EUR advances to new yearly tops near 1.1250 against the USD on Monday.
- The risk-on mood looks propped up by Chinese economic data releases.
- The USD Index fails to regain the 100.00 barrier.
- Further Fed tightening beyond July looks doubtful.
- Gold regains some balance, while Oil adds to recent losses.
Technical Analysis: Euro could face a technical correction near term
The ongoing price action in EUR/USD hints at the idea that further gains might be in store in the short-term horizon. However, the current pair’s overbought condition (as per the daily RSI near 75) leaves the door open to a potential short-term technical correction.
The pair printed a new 2023 high at 1248 on July 17. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.
On the downside, the 1.1000 region emerges as a psychological support seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMAs) at 1.0886 and 1.0859, respectively, ahead of the July 6 low of 1.0833. The breakdown of this region should meet the next contention area at the key 200-day SMA at 1.0658 prior to the May low of 1.0635 (May 31). South from here emerges the March 15 low of 1.0516 before the 2023 low of 1.0481 seen on January 6.
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.
The current bullish view in the pair is also supported by the uptrend in open interest, which saw an increase of more than 1K contracts on Friday, according to flash data from CME Group.
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).
Comments are closed.