EUR/USD News (Euro US Dollar)


EUR/USD: Euro trades flat seeking the equilibrium between politics and the economy

 

The euro is trading little changed around $1.1730 against the US Dollar on data weak Tuesday. After the roller-coaster rise on Monday caused by the collapse of coalition talks in Germany Angela Merkel prefers new elections while German President Steinmeier looks for renewed discussions.

Even without the government German economy is doing well with Bundesbank expecting the brisk economic growth rate to continue well into 2018.

 


1. Technical Overview

The pair’s upside bias should remain unchanged as long as 1.1682/1.1721 continues to hold, suggested Karen Jones, Head of FICC Technical Analysis at Commerzbank.

Jim Langlands at FX Charts noted: “The short-term momentum indicators still look a little heavy and we might see another test of the 1.1721 low, below which could allow a decline towards 1.1700, below which 1.1670/80 would attract. On the other hand, the daily MACDs still suggest that further gains are possible in the days ahead, and back above the session high of 1.1807 would open up 1.1820/30, which would find good sellers ahead of 1.1855/60 and again at 1.1880/85, beyond which would allow a run towards 1.1900+.”

EUR/USD PRICE SENTIMENT

EUR/USD BULLISH PERCENTAGE INDEX


The major pair was unable to break back above some important resistance at 1.1880 and is paying the price because of it into Tuesday. This latest topside failure keeps alive that head & shoulders top that triggered several days back.

EUR/USD Pivot points

EUR/USD trading positions


2. Fundamental Overview

EUR/USD closed below the 100-day MA yesterday but failed to cut through the support offered by the trendline sloping downwards from the Sep. 8 high and Sep. 20 high.

So is the drop in the EUR justified? Mario Blascak, European Chief Analyst at FXStreet, believes there is no problem with any scenario - new elections or minority government. Blascak says, "countries like Belgium, Holland and Czech Republic have a long tradition of forming a government for ages and nothing happened to countries’ economies. In terms of currency reaction, the move downwards has been a bit unjustified and it is likely that the EUR/USD will correct towards $1.1800 soon. However, risk reversals indicate a falling demand for EUR calls.

Later today, the focus will remain on the German political development and USD dynamics amid a lack of fundamental news out of Euroland. Meanwhile, the US docket also remains light, with the only existing home sales lined up for release.

EURUSD FUNDAMENTALS TODAY


3. Latest News & Analysis

EUR/USD News

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EUR/USD Analysis

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4. EUR/USD Big Picture

Themes affecting the EUR/USD

  • Trump can reshape the Fed's policy, if he decides to bring more doves into the central bank
  • Weak labor market is creating uncertainty surrounding any potential moves by the Fed regarding another interest rate for the rest of 2017
  • Investors are hedging their bets on the Fed, just in case they back down from their rate-hiking cycle
  • Money flow heading out to the commodity-based countries and emerging markets in search for higher yields
  • Slow US economic growth coupled with a normalising policy, increases the risk of a recession
  • The US Treasury has significantly eased USD liquidity in the USD money market so USD has become cheaper due to this increased supply
  • Protectionist talk coming from the Trump administration
  • Regulatory changes in U.S. money market, it may now be no longer advantageous to issue debt in U.S. dollars
  • With fixed income markets no longer exuberant about the prospect of US growth the dollar has lost its primary catalyst for appreciation
  • USD overvalued according to OECD
  • Shrinking the balance sheet instead of raising the policy rate might tend to weaken the dollar
  • A depreciation of the dollar would reduce pressures on countries with fixed exchange rates and external debt.
  • The dollar is vulnerable to the idea of a trade wars
  • The dollar is vulnerable to the idea of China selling a big chunk of its dollar reserves
  • The dollar has started its 15 year super cycle decline
  • China will stop requiring financial institutions to set aside cash when buying dollars through currency forwards
  • The core of the FOMC expects another hike this year and three more in 2018
  • 2- and 10-year interest rate differentials begin trending back in the US favor
  • The US yield curve has steepened
  • The Fed's dot plot is expecting rates to rise to a touch over 2% by 2018
  • The roll back of the Dodd-Frank Wall Street Reform Act
  • If equities roll over the USD could rise back in a furious kind of way
  • The USD is still more than twice as large in its use as reserve assets, or turnover in the foreign exchange market
  • Trump's planned tax reform and aggressive fiscal stimulus
  • Verbal intervention by politicians into the currency market can backfire
  • The relative better health of the US financial system
  • Capital outflows from the eurozone in 2016 have been the biggest in 14 years
  • LIBOR is rising is because money is being taken out of that offshore funding market and being put onshore in the US
  • The world is USD dollar starved and there is a shortage of offshore dollar funding -the Eurodollar maket
  • Higher interest rates in the US makes it cheap to hedge European or Japanese exposure
  • ECB may delay the start of tapering until middle of next year on low inflation expectations
  • While much of Germany's industry is competitive at stronger euro levels, the cost structure of other economies is not as favorable
  • In Italy, each of the four main parties opposing the Democratic Party subscribe to the introduction of a parallel currency to rival the Euro
  • The market will be more sensitive to a cut in the inflation forecast than an increase in the growth forecast
  • French, Italian and Spanish benchmark yields have declined
  • Macron's standing in France is lower than Trump's in the US
  • Europe still has not found a consistent way to clean its dirty financial laundry
  • EUR has probably benefitted from unhedged equity inflow and is vulnerable to a correction in equities
  • The Target2 system, designed to adjust accounts automatically between the branches of the ECB's family of central banks, in reality, has become a cloak for chronic one-way capital outflows
  • Greece may not achieve the required target to qualify for a cash bailout
  • Draghi risks interest rates traveling much higher
  • The risk of deflation has disappeared
  • Flows out of the US and into Europe as a relative haven for US political uncertainty
  • Sentiment surveys shows EUR exchange rate was no impediment to economy
  • The capacity of Europe to build stronger economic and political relations with China, makes it appear as a relatively safe place to invest
  • Rising European yields are the latest shiny thing that traders can see
  • Many investment houses and journalists are talking up European equities and the euro as the counterpart to the unwind of the Trump trade
  • Diminishing election risk in Europe
  • The euro has increasingly become a funding currency (borrowing in euros to buy higher yielding assets)
  • The euro ist appreciating well before rates will actually go up again in the Eurozone
  • Eurozone is getting the same boost the US got from QE, just a few years later
  • With higher Libor clients may well decide to no longer seek a U.S. dollar loan, but instead a euro-denominated loan, or a loan denominated in their home country's currency
  • Current account flows, valuation and positioning were supportive of the euro

Influential Institutions & People for the EUR/USD

The Euro US Dollar can be seriously affected by news or the decisions taken by two main central banks:

The European Central Bank (ECB) is the central bank empowered to manage monetary policy for the Eurozone and maintain price stability, so that the euro’s purchasing power is not eroded by inflation. The ECB aims to ensure that the year-on-year increase in consumer prices is less than, but close to 2% over the medium term. Another of its tasks is the one of controlling the money supply. The European Central Bank’s work is organized via the following decision-making bodies: the Executive Board, the Governing Council and the General Council. Mario Draghi, member of the Executive Board, is also the President of this organism. 

On the other hand we found The Federal Reserve System (Fed) wich is the central banking system of the United States. Fed has two main targets: to keep unemployment rate to their lowest possible levels and inflation around 2%. The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth.


Mario Draghi

Mario Draghi is member of ECB's Executive Board and also the President of this organism. His declarations are an important source of volatility, especially for the Euro and the currencies traded against it. Born in 1947 in Rome, Italy, he graduated of the Massachusetts Institute of Technology and became President of the European Central Bank in 2011. Draghi gives press conferences in the back of how the ECB observes the current European economy. His comments may determine positive or negative trends for the Euro in the short-term. Usually, a hawkish outlook is seen as positive/bullish for the EUR, while a dovish one is seen as negative/bearish. 

Janet Yellen

Janet L. Yellen (born August 13, 1946) took office as Chair of the Board of Governors of the Federal Reserve System (Fed) on February 3, 2014, for a four-year term ending February 3, 2018.  She had already previously served as a Vice Chair from 2010 to 2014. This American economist also serves as Chairman of the Federal Open Market Committee (FOMC), the System's principal monetary policymaking body. Her declarations are also an important source of volatility, especially for the US Dollar and the currencies traded against it.


ECB NEWS & ANALYSIS

FED NEWS & ANALYSIS


About EUR/USD

The EUR/USD (or Euro Dollar) currency pair belongs to the group of 'Majors', a way to mention the most important pairs in the world. This group also includes the following currency pairs: GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The popularity is due to the fact that it gathers two main economies: the European and American (from United States of America) ones. This is a widely traded currency pair where the Euro is the base currency and the US Dollar is the counter currency. Since the EUR/USD pair consists of more than half of all the trading volume worldwide in the Forex Market, it is almost impossible for a gap to appear, let alone a consequent breakaway gap in the opposite direction.

Normally, it is very quiet during the Asian session because economic data that affects the fundamentals of those currencies is released in either the European or U.S. session. Once traders in Europe get to their desks a flurry of activity hits the tape as they start filling customer orders and jockey for positions. At noon activity slows down as traders step out for lunch and then picks back up again as the U.S. comes online. If there is important U.S. data we can expect quiet markets just ahead of the number. U.S. economic news have the ability to either reinforce an existing trend or reverse it depending on by how much it missed or beat expectations with the EUR/USD news. By 5:00 GMT liquidity leaves the market once again as European traders close out positions and head home.

EURUSD 2017 YEARLY FORECAST

Related pairs

GBP/USD

The GBP/USD (or Pound Dollar) currency pair belongs to the group of 'Majors', a way to mention the most important pairs worldwide. This group also includes the following currency pairs: EUR/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The pair is also called 'The Cable', reffering to the first Transatlantic cable that was crossing the Atlantic Ocean in order to connect Great Britain with the United States of America. This term was originated in the mid-19th century and it makes GBP/USD one of the oldest currency pairs in the world.

The popularity of the Pound Dollar is due to the fact that represents two strong economies: British and American (from United States of America). The Cable is a widely observed and traded currency pair where the Pound is the base currency and the US Dollar is the counter currency. After the result of the Brexit referendum, where the majority of the British voted to abandon the European Union, GBP/USD has been suffering some turbulence in the Forex market as a consequence of the associated risks of leaving the single market.

USD/JPY

The USD/JPY (or US Dollar Japanese Yen) currency pair is one of the 'Majors', the most important pairs in the world. Japanese Yen has a low interest rate, normally used in carry trades, that's why is one of the most trades currencies worldwide. In the USD/JPY the US Dollar is the base currency and the Japanese Yen is the counter currency. The pair represents American (from United States of America) and Japanese economies.

Trading the USD/JPY currency pair is also known as trading the "ninja" or the "gopher", although this last name is more frequently used when reffered to the GBP/JPY currency pair. The US Dollar Japanese Yen usually has a positive correlation with the following two pairs: USD/CHF and USD/CAD. The nature of this correlation is dued to the fact that both currency pairs also use the US Dollar as the base currency, such as USD/JPY. The value of the pair tends to be affected when the two main central banks of each country, the Bank of Japan (BoJ) and the Federal Reserve Bank (Fed), face serious interest rate differential.


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