Euro returns to the 1.0950 region ahead of Lagarde speech, FOMC Minutes

  • The Euro abandons the area of recent tops against the US Dollar.
  • European stocks trade mostly with losses on Tuesday.
  • The FOMC Minutes and ECB Lagarde's speech will grab all the attention later in the day.

The Euro (EUR) comes under some pressure against the US Dollar, motivating EUR/USD to trim part of the earlier uptick to new three-month peaks in the 1.0960-1.0965 band, a region unseen since mid August, where some initial resistance seems to have emerged so far.

On the other side of the coin, the Greenback, gauged by the USD Index (DXY), manages to bounce off recent lows in the 103.20 zone despite the so-far tepid bearish note in US yields across the curve.

The Dollar's pullback is fueled by growing speculation about a potential Federal Reserve (Fed) interest rate cut in spring 2024, which remains underpinned by lower-than-expected inflation indicators (CPI and PPI) released last week.

On the European docket, European Central Bank’s (ECB) President Christine Lagarde will speak on “Inflation kills democracy” in Germany.

Across the ocean, the Chicago Fed National Activity Index eased to -0.49 in October. Later in the session, Existing Home Sales data are due followed by the FOMC Minutes of the November 1 meeting.

Daily digest market movers: Euro loses some impulse on Dollar's recovery

  • The EUR's upside runs out of some steam against the USD on Tuesday.
  • US yields trade in a mixed tone, German yields remain on the defensive.
  • Investors continue to price in interest rate cuts by the Fed in Q1 2024.
  • Markets expect the ECB to extend its pause until early next year.
  • BoE's Governor Andrew Bailey showed concerns over pesistent inflation.
  • ECB's Gediminas Simkus rules out another hike in December.
  • The RBA Minutes came in on the hawkish side.

Technical Analysis: Euro faces the next key target at 1.1000

EUR/USD extends the bullish move to fresh multi-week tops, exceeding 1.0960 on Tuesday.

The November high of 1.0965 (November 21) is currently just ahead of the psychological milestone of 1.1000 for EUR/USD. Further north, the pair might run into the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all of which precede the 2023 high of 1.1275 (July 18).

On the other hand, occasional bearish rallies should find first support at the key 200-day SMA at 1.0806, seconded by the temporary 55-day SMA at 1.0648. South of here, the weekly low of 1.0495 (October 13) appears before the 2023 low of 1.0448 (October 3).

Overall, the pair's chances should stay strong as long as it continues to trade above the 200-day SMA.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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