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The Euro remains at three-month highs around 1.0930

  • The Euro extends its gains against the US Dollar.
  • Shares are trading mostly at a loss on Monday.
  • The FOMC Minutes will be the featured event this week.

The Euro (EUR) maintains its bullish bias against the US Dollar (USD), which has led the EUR/USD pair to hover around the 1.0930 area, or three-month highs, so far this Monday.

Meanwhile, the evolution of the Dollar, reflected in the USD Index (DXY)remains negative and tests the key 200-day SMA in the 103.60 region during the European morning.

The persistent bearish trend in the Dollar comes amid marginal movements in US yields across the curve, against the backdrop of growing speculation about possible interest rate cuts by the Federal Reserve (Fed) in the spring 2024. This speculation has been fueled by weaker-than-expected inflation indicators (CPI and PPI) published last week.

On the national agenda, production prices in Germany contracted 0.1% month-on-month in October and 11.0% in the last twelve months.

In the United States, the only notable publication will be the leading index prepared by The Conference Board.

Daily market summary: The Euro seems ready to extend its upward trend

  • On Monday, the Euro seems well positioned against the Dollar.
  • Yields in the US and Germany are advancing modestly so far.
  • Markets see the Fed lowering interest rates in the first quarter of 2024.
  • Investors expect the ECB to postpone raising rates.
  • In the USD/JPY market there is speculation about an intervention in the currency market.

Technical Analysis: Euro outlook remains constructive above the 200-day SMA

EUR/USD remains optimistic and sounds good north of 1.0900 at the beginning of the week.

Immediately to the upside for EUR/USD is the weekly high of 1.0945 from August 30, ahead of the psychological level of 1.1000. To the upside, the pair could come into contact with the August high of 1.1064 (Aug 10) and another weekly high of 1.1149 (July 27), all preceding the 2023 high of 1.1275 (July 18).

Occasional bearish moves, meanwhile, should find initial support at the critical 200-day SMA at 1.0805, seconded by the 55-day SMA at 1.0644. South of here the weekly low of 1.0495 (Oct 13) emerges before the 2023 low of 1.0448 (Oct 3).

Broadly speaking, the outlook for the pair should remain positive as long as it trades above the 200-day SMA.

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 in the Eurozone. Germany’s economic performance, its GDP, employment and inflation can greatly influence the 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 bund price increases the coupon as a percentage of the loan, resulting in 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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