- Euro comes under pressure around 1.0880 vs. the US Dollar.
- Stocks in Europe extend the weekly rout so far.
- EUR/USD falters once again around the 1.0900 region.
- US jobs report takes centre stage later in the session.
- ECB’s Christine Lagarde speaks later in the day.
The Euro (EUR) struggled once again to breach the key 1.0900 resistance level against the U.S. Dollar (USD) on Friday, allowing the selloff in EUR/USD to resume amid overall caution in markets ahead of the upcoming U.S. jobs report.
The USD Index (DXY) index was mixed, while the Greenback’s recent strong rebound appears to be taking a breather at the end of the week.
Debate continues around the potential future moves by the Federal Reserve and European Central Bank (ECB) to normalize monetary policy, as concerns grow about slowing growth on both sides of the Atlantic.
Recent strong U.S. economic data, reflecting a tight labor market and resilient economy, has reinforced expectations the Fed will likely hike rates by a quarter point at its July meeting.
Back at the ECB, Vicepresident Luis De Guindos said that their job was not yet done and mentioned that while underlying price pressures continued to be strong, most indicators had started to display some signs of softening. He noted that services had become an important driver of inflation and emphasized that the evolution of core inflation would be crucial for future ECB policy decisions. De Guindos also pointed out that it was uncertain what would happen to rates in September.
In the domestic data space, Industrial Production in Germany contracted 0.2% MoM in May, while Retail Sales in Italy expanded 0.7% also in May vs. the previous month.
Across the Atlantic, consensus expects the US economy to have created 225K jobs in June and the Unemployment Rate to have eased to 3.6% in the same period.
Daily digest market movers: Euro remains offered ahead of NFP
- The EUR keeps the price action depressed for the time being.
- Germany’s Industrial Production surprised to the downside.
- US jobs report grabs all the attention on Friday (+225K exp.).
- Investors continue to price in a 25 bps hike by the Fed in July.
- ECB’s De Guidos did not shed any details regarding the September meeting.
- ECB’s Lagarde speaks later in the session.
Technical Analysis: Euro does not rule out extra losses
The inability of EUR/USD to gather some convincing upside traction has prompted sellers to remain in control of the pair for the time being.
That said, the loss of the weekly low at 1.0833 (July 6) could open the door to a test of the interim 100-day SMA at 1.0826. The breakdown of the latter should meet the next contention area not before the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).
On the other hand, occasional bullish attempts should clear the 1.0900 region to expose a potential move to the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0618.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Source: https://www.fxstreet.com/news/euro-remains-capped-by-10900-ahead-of-nfp-202307070858