EUR/USD News (Euro US Dollar)


EUR/USD trying to extend its recovery

Beyond safe-havens on the run, the FX market is offering little this Friday. The EUR/USD trades in the 1.1730/40 region pretty much since the day started and seems unlikely it would move far away from the level today due to a scarce macroeconomic calendar and both currencies weakened by self woes.


1. Technical Overview

The pair is poised to close the week in the red after advancing for five consecutive ones, a sign of a probable top underway. Nevertheless, the dollar is far from market's favor after the latest political jitters in the US, and Fed's dovish minutes for its latest meeting.

In the short term, the pair presents a neutral-to-bearish stance, given that in the 4 hours chart, it's hovering around a bearish 20 SMA, but below the 100 SMA, whilst technical indicators hold flat around their mid-lines. The pair has an immediate resistance in the 1.1770/80 region, with gains above the level exposing the 1.1820/30 price zone, where selling interest will likely contain the advance.

Below 1.1690, on the other hand, the pair can extend its decline< to fresh weekly lows around 1.1650, while further declines beyond this last could see the pair nearing 1.1600 by the end of the week.

EUR/USD PIVOT POINTS

EUR/USD TRADING POSITIONS

EUR/USD PRICE SENTIMENT

EUR/USD BULLISH PERCENTAGE INDEX


2. Fundamental Overview

After strengthening at the beginning of the day, the US dollar edged lower against all of its G10 counterparts amid the Trump-related tensions and the softer-than-expected industrial production in July (+0.2% month-on-month vs. +0.3% expected and 0.4% printed a month earlier). The US stocks were offered in New York.

The EUR was hit by the European Central Bank (ECB) meeting accounts revealed concerns about the euro appreciation, given that a stronger currency could jeopardise the ECB’s efforts to pull the inflation up to the 2% policy target. As expected, the ECB minutes gave no details regarding the Quantitative Easing (QE) exit plans on Thursday. President Mario Draghi is not expected to talk about the QE exit plans at next week’s Jackson Hole meeting either. He will likely keep the market in suspense until the ECB’s September policy meeting, which corresponds to the end of the current QE program. Traders are expected to remain buyer at dips on speculations of an eventual QE tapering. Decent call options stand at 1.1650 - 1.1800 at today’s expiry and should give support to the bulls before the weekly closing bell. Meanwhile, the probability of a significant QE taper is fading due to rising concerns on the Eurozone inflation. Rising doubts among the ECB-hawks could limit the euro's upside potential.

LThe political fallout for Donald Trump following his reaction to Charlottesville is suddenly spilling into the markets, with the dollar under pressure and equities selling off. Rumours of that key members of his administration were upset over his response this week and could be close to resignation have further dented any expectation that Trump could achieve anything in Congress.

EURUSD FUNDAMENTALS TODAY


3. Latest News & Analysis

EUR/USD News

EUR/USD remains below 1.18, looks to close week with losses

EUR/USD Analysis

EUR/USD analysis: Markit PMIs and Jackson Hole to set the tone this week

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4. EUR/USD Big Picture

Themes affecting the EUR/USD

  • Poor wage growth
  • International backdrop of rising inflation and economic growth
  • Rise in USD liquidity through US Treasury easing in the money market
  • Trump's planned border adjustment tax in a country with current account deficit.
  • Declining yield spreads between US Treasuries and gov. bonds elsewhere
  • Due to regulatory changes in US money market, it may now be no longer advantageous to issue debt in U.S. dollars
  • Fixed income markets no longer exuberant about the prospect of US growth
  • No more reason for a strong dollar as in with the US’s past energy imports and domestic consumption
  • Shrinking the balance sheet instead of raising the policy rate might tend to weaken the dollar
  • China threats to sell U.S. Treasuries
  • Trump’s proposed fiscal stimulus failing to keep up with market expectations
  • Chinese government efforts to clamp down on avenues for capital outflow may affect the USD
  • China's threat of selling dollar reserves
  • Strengthening USD move tends to be up to and at the beginning of a hiking cycle
  • The USD is ready to begin its 15 year super cycle decline
  • Real interest rates, i.e. those after inflation, may not go up as the Fed is at risk of falling further behind the curve; at the same time, interest rates in part of the rest of the world may have reached their lows
  • If equities start to roll over, USD may strengthen
  • Pending 5th wave development towards 106 on the USD index
  • A viable and compelling alternative to the USD does not exist today as a main reserve asset
  • A tax reform and aggressive fiscal stimulus in the US
  • A risk-off mode is a USD positive environment
  • Verbal intervention by politicians into the currency market (talking the USD down) does not always go according to plan, and can even backfire
  • A border tax adjustment may spurr a significant dollar appreciation. The dollar would rise to offset the tax.
  • U.S. tax system is shifting to a territorial one. If so, it may remove the incentive for businesses to move their headquarters abroad
  • Artificial barriers to allocate capital are removed, allowing a more efficient allocation of capital
  • Divergence of monetary policy
  • The relative health of the US financial system
  • Capital outflows from the eurozone hit record highs in 2016
  • Perceived shortage of offshore dollar funding in the in the outside system -the Eurodollar maket (to be seen in the LIBOR market rising with US interest rates also rising)
  • Weaker inflation forecasts revived expectations that the ECB would delay the QE exit toward the end of 2017 the earliest
  • Possible early election in Italy creates political uncertainty
  • ECB extending its QE purchases beyond December 2017, by which time, the Fed's balance sheet would have likely begun shrinking and a couple more interest rate hikes will probably have been delivered
  • Wave 3 of III is now unfolding for weakness towards parity
  • The Target2 system is being used for chronic one-way capital outflows: investors sell their holdings of Italian or Portuguese sovereign debt to the ECB at a profit, and rotate the proceeds into mutual funds Germany or Luxembourg
  • Greece may not achieve the required target to qualify for a cash bailout
  • The OECD models see the euro undervalued to the USD
  • Investors responded positively to the electoral developments in Italy (June)
  • Perception of diminishing election risk in France and Germany
  • Eurozone data continues to look solid with first quarter GDP growth revised up
  • Ideas that the rising eurozone inflation and continued above-trend growth would prompt the ECB to begin preparing the market for an exit from QE
  • The euro has increasingly become a so-called funding currency. Because rates are so low, speculators are borrowing in euros to buy higher yielding assets. A risk-off event, e.g. a sharper decline in stocks, would force speculators might to reduce their bets and buy back the euro The euro may well start appreciating well before rates will actually go up again in the Eurozone (in anticipation as with the USD)
  • There are many different rates and some could be raised before the bond purchases are done.
  • Federal Reserve and ECB monetary policy should not diverge so noticeably based on economic prospects
  • Draghi reference that rates will remain low or lower has been modified to suggest less risk of a lower rates
  • The Eurozone is getting the same boost the US got from QE
  • Sentiment takes over fundamentals and traders may buy the euro if they think that a taper is due and needed
  • Corrective wave develpment may lift the EURUSD
  • At higher LIBOR rates, investors might decide to no longer seek a U.S. dollar loan, but instead a euro-denominated loan
  • Current account flows, valuation and positioning are 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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