Euro clings to daily gains past 1.0500, Dollar remains offered
- The Euro picks up further pace vs. the US Dollar.
- Stocks in Europe trim initial losses on Thursday.
- EUR/USD meets initial suport around 1.0490.
- The DXY USD Index surrenders gains following recent 2023 tops.
- Flash inflation figures in Germany dropped more than expected.
- Final GDP matched consensus for the second quarter.
After reaching new lows not seen in eight months around 1.0490, the Euro (EUR) manages to gain fresh upward momentum against the US Dollar (USD). This encourages EUR/USD to surpass the 1.0500 yardstick and rise further on Thursday.
In contrast, the Greenback's rally encounters some obstacles after reaching new highs for 2023 within the 106.80-106.85 range, as indicated by the USD Index (DXY). The sudden shift in the index is also accompanied by mixed movements in US yields, which, nevertheless, remain at multi-year levels across the yield curve.
The same situation occurs in the German money market, where 10-year bund yields remain on track to retest 3.00% for the first time since mid-July 2011.
From a monetary policy perspective, investors are still incorporating the expectation of the Federal Reserve (Fed) implementing a further 25 bps interest rate hike by the end of the year. At the same time, market conversations continue to suggest a potential pause at the European Central Bank (ECB) despite inflation levels staying well above the bank's target and growing worries about a possible recession.
In the domestic calendar, Germany’s preliminary Inflation Rate saw the CPI rise 4.5% in the year to September. In the broader Eurozone, Economic Sentiment eased a tad to 93.3 and Consumer Confidence came in at -17.8, both prints for the month of September.
Across the ocean, the final prints of the Q2 GDP came in at 2.1%, while weekly Initial Jobless Claims increased by 204K in the week to September 23. Later in the session, Chicago Fed President Austan Goolsbee and FOMC Governor Lisa Cook are due to speak. In addition, Chair Jerome Powell will participate in an event with educators in Washington DC.
Daily digest market movers: Euro looks to consolidate the breakout of 1.0500
- The EUR rebounds from multi-month lows against the USD.
- US yields trade in a mixed tone vs. a marked uptick in German yields.
- Markets factor in the Fed hiking rates by 25 bps before year-end.
- Investors anticipate potential interest rate cuts by the Fed in Q3 2024.
- Traders sees the ECB’s tightening campaign entering an impasse.
- Inflation rate in Spain ticked higher in September, according to preliminary data.
- Germany's preliminary CPI came in at 4.5% in September.
- US final Q2 GDP matched estimates at 2.1% YoY.
- Intervention fears remain as USD/JPY approaches the 150.00 hurdle.
Technical Analysis: Euro still risks further retracements
Despite the daily rebound, EUR/USD remains well under pressure and continues to target the 2023 low in the 1.0480 region.
Looking at contention levels for the EUR/USD, immediate support emerges at the September 28 low of 1.0491, seconded by the 2023 low at 1.0481 seen on January 6.
When considering potential resistance levels, there is a minor obstacle at the September 12 high of 1.0767, and a more substantial barrier at the 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to surpass this level, it could open the path for further recovery, targeting the temporary 55-day SMA at 1.0865, with the potential to reach the August 30 high of 1.0945. Exceeding this level might shift the focus towards the psychological 1.1000 hurdle, ahead of the August 10 peak of 1.1064. Beyond these points, the pair could potentially retest the July 27 top at 1.1149, and even reach the 2023 high at 1.1275 from July 18.
As long as the EUR/USD remains below the 200-day SMA, there remains a possibility of persisting downward pressure.
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.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
