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The Euro maintains the buying bias around 1.0700, the USD remains slightly bid

  • The Euro continues to oscillate around the 1.0700 area against the US Dollar.
  • European stocks are trading on the defensive.
  • The EUR/USD pair finds initial resistance around 1.0730.
  • The US Dollar Index (DXY) tests the 105.00 zone.
  • The final CPI for August in Germany matched preliminary readings.
  • Next, wholesale inventories and the variation in consumer credit will be published on the United States agenda.

On Friday, the Euro (EUR) managed to gain some bullish momentum against the US Dollar (USD), pushing EUR/USD back above the 1.0700 level as the week draws to a close.

The Dollar saw a partial pullback from its six-month highs above the 105.00 threshold, as indicated by the US Dollar Index (DXY), due to a modest recovery in risk appetite among investors and amid the absence of a clear direction in the US bond market.

Regarding monetary policy, speculation about a possible interest rate hike by the Federal Reserve (Fed) in November appears to have lost some momentum. Meanwhile, market participants continue to factor in the likelihood of rate cuts sometime in the second quarter of 2024.

As for the European Central Bank (ECB), there is talk in the markets that the next meeting on September 14 could lead to a pause, given the divided opinions within the Council.

On the Euro agenda, the final inflation figures in Germany recorded a monthly increase in the CPI of 0.3% in August and 6.1% in the last twelve months, unchanged from preliminary estimates, while Industrial Production in France grew 0.8% month-on-month in July.

On the other hand, in the United States, wholesale inventories and the variation in consumer credit will be published.

Daily market summary: Euro remains under pressure as we wait for the ECB

  • The Euro shows signs of life against the Dollar.
  • Yields in the United States and Germany appear to be trending lower early on Friday.
  • Investors expect the ECB to leave the deposit rate unchanged this month.
  • Dallas Fed President Lorie Logan favors a pause in September.
  • New York Fed President John Williams expects the unemployment rate to rise above 4%.
  • Markets remain confident in a Fed rate cut in the second quarter of 2024.
  • Strikes begin today at Chevron LNG plants.
  • The final GDP Growth rate in Japan stood at 4.8% year-on-year.

Technical Analysis: The Euro keeps the door open to a fall to 1.0635

EUR/USD is trading with slight gains near the 1.0700 area on Friday, having hit multi-week lows near 1.0680 in the previous session.

If EUR/USD manages to break through Thursday’s level at 1.0685, it could retest the May 31 low at 1.0635 before potentially reaching the March 15 low at 1.0516. A break of this last level could trigger a possible test of the 2023 low at 1.0481 on January 6.

Conversely, in terms of bullish movement, the current target is the critical 200-day SMA at 1.0822. Further, the bullish momentum could lead to challenging the August 30 level at 1.0945, which is reinforced by the provisional 55-day SMA at 1.0945. This could subsequently set the stage for a move towards the psychological level of 1.1000 and the August high at 1.1064. If the pair manages to break above this zone, it could relieve some of the bearish pressure and potentially head towards the July 27 high at 1.1149 before the 2023 high at 1.1275 on July 18.

As long as EUR/USD remains below the 200-day SMA, the pair is likely to continue moving lower.

Frequently asked questions about the German economy

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 overall stability and confidence in the euro. If the German economy strengthens, it can strengthen the value of the euro, while if it weakens, the opposite happens. Overall, the German economy plays a crucial role in the strength of the euro and its perception in world markets.

What is Germany’s political role in the Eurozone?

Germany is the largest economy in the Eurozone and, therefore, an influential player in the region. During the eurozone sovereign debt crisis in 2009-12, Germany was instrumental in creating several stability funds to bail out debtor countries. After the crisis, it took a leading role in implementing the “Fiscal Compact”, a set of stricter rules to manage the finances of Member States and punish “debt sinners”. Germany spearheaded a culture of “financial stability” and its economic model has been widely used as a model of economic growth by the other members of the eurozone.

What are German bunds?

Bunds are bonds issued by the German government. Like all bonds, they pay their holders a periodic interest payment, or coupon, followed by the total value of the loan, or principal, at maturity. Since Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are considered a sound and risk-free investment as they are backed by the full faith and credit of the German nation. For this reason, investors consider them a safe haven, which appreciates in times of crisis and falls in periods of prosperity.

What are German bond yields?

German bond yields measure the annual return that an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay their holders interest at regular intervals, called a “coupon,” followed by the total value of the bond at maturity. While the coupon is fixed, the Yield varies as it takes into account changes in the price of the bond, so it is considered a more accurate reflection of profitability. A decrease in the price of the bund increases the coupon as a percentage of the loan, which translates into a higher yield and vice versa for an increase. This explains why the Bund Yield moves inversely to prices.

What is the Bundesbank?

The Bundesbank is the central bank of Germany. It plays a key role in the implementation of monetary policy in Germany and, in general, in the central banks of the region. Its objective is price stability, that is, keeping inflation low and predictable. It is responsible for ensuring the proper functioning of payment systems in Germany and participates in the supervision of financial institutions. The Bundesbank has a reputation for being conservative and prioritizes the fight against inflation over economic growth. It has influenced the creation and policy of the European Central Bank (ECB).

Source: Fx Street

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