Euro challenges the 200-day SMA near 1.0820, looks at US ISM
- The Euro remains on the defensive against the US Dollar.
- European stocks trade mostly with gains on Tuesday.
- US ISM Services PMI takes centre stage in the docket.
The Euro (EUR) remains under persistent downward pressure against the US Dollar (USD), causing EUR/USD to hover around the 1.0820 region on Tuesday, an area also coincident with the critical 200-day SMA.
On the other hand, the US Dollar demonstrates slight strength around 103.70, as indicated by the USD Index (DXY), contributing to a positive start to the week. The decent advance in the index is noteworthy, especially considering the modest retracements observed in US yields across various maturity periods.
In terms of the wider economic context, the current stance on monetary policy remains unchanged, with investors contemplating potential interest rate cuts from both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
In the domestic docket, final Services PMI in Germany and the broader Eurozone surpassed the preliminary prints at 49.6 and 48.7, respectively, for the month of November.
Across the Atlantic, final S&P Global Services PMI is due in the first turn seconded by the key ISM Services PMI and the RCM/TIPP Economic Optimism Index.
Daily digest market movers: Euro remains depressed on Dollar strength
- The EUR extends the bearish tone against the USD.
- US and German yields resume the downward trend.
- Speculations of rate cuts by the Fed in March remain on the rise.
- Investors see the ECB trimming its interest rates in Q2 2024.
- The RBA left its policy rate unchanged, as expected.
Technical Analysis: Euro faces extra losses once 1.0800 is breached
EUR/USD faces further selling pressure and recedes to the 1.0800 neighbourhood.
If the EUR/USD continues to fall, it may come into contact with the 100-day SMA at 1.0774 as a first point of support. The 55-day SMA around 1.0682 is expected to provide brief support in the case of a breach. If this level is also broken, the weekly low of 1.0495 (October 13) will be revealed, followed by the 2023 low of 1.0448 (October 3) and the psychological threshold of 1.0400.
If the EUR/USD continues to fall, it may encounter the initial point of support at the December low of 1.0804 (December 4,5). In the case of a breach, the 55-day SMA around 1.0684 is expected to provide temporary support ahead of the weekly low of 1.0495 (October 13), seconded by the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.
Meanwhile, the pair is expected to retain its positive view while keeping above the 200-day SMA, today at 1.0820.
German economy FAQs
What is the effect of the German Economy on the Euro?
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.
What is the political role of Germany within the Eurozone?
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.
What are German Bunds?
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.
What are German Bund Yields?
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.
What is the Bundesbank?
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).
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.
