- Euro weakens further and tests new lows near 1.1040 against the US Dollar.
- Stocks in Europe trade mostly with gains on Tuesday.
- EUR/USD’s earlier bullish attempt evaporated near 1.1090 .
- Germany’s Business Climate surprises to the downside in July.
- US Consumer Confidence will take centre stage later in the session.
The Euro (EUR) maintains the bearish performance well in place against the US Dollar (USD), forcing EUR/USD to drop further and record new lows in the 1.1040/35 band on turnaround Tuesday.
Earlier in the day, the pair reached daily highs in the range of 1.1085/90, but failed to maintain the momentum, leading to a corrective move towards new lows around 1.1040. This downward trend was aided by a lower-than-expected Business Climate in Germany, as tracked by the IFO institute, as well as the persistent upside bias in the Greenback.
Looking ahead, we can expect a higher level of volatility in the currency pair as both the Federal Reserve and the European Central Bank (ECB) have important meetings scheduled for later in the week. Furthermore, both central banks are expected to raise interest rates by 25 basis points (bps), but there is a growing divergence in their short-term plans for future tightening.
On this, the Fed appears to be nearing the end of its hiking cycle, suggesting a potential pause or slowdown in the future. In contrast, some officials from the ECB have recently expressed less hawkish views on the likelihood of further rate hikes beyond the summer.
In the euro docket, the IFO’s Business Climate for the month of July fell short of expectations, coming in at 87.3.
Meanwhile, in the US, the S&P/Case-Shiller Home Price index and the FHFA’s House Price Index, both for the month of May, are due to be released, followed by the Conference Board’s Consumer Confidence index data for July, which is highly relevant.
Daily digest market movers: Euro retraces further the rally to 2023 tops
- The EUR appears relegated to the lower end of the range against the USD.
- The USD Index seems to have met some initial hurdle around 101.50.
- Investors see the Fed and the ECB hiking rates this week.
- US, German yields rebound mildly in the European morning.
- The Fed starts its 2-day meeting later today.
Technical Analysis: Euro keeps the downside target at 1.1000
EUR/USD extends its decline to the 1.1040 region on Tuesday.
Further downside, the EUR/USD pair should meet immediate contention at the weekly low of 1.1041 ahead of the psychological 1.1000 mark, all seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMA) at 1.0900 and 1.0890, 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 1.0699 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).
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