- The Euro extends its gains vs. the US Dollar.
- European stocks trade mostly with losses on Monday.
- The FOMC Minutes will be the salient event this week.
The Euro (EUR) maintains the bullish bias unchanged against the US Dollar (USD), prompting EUR/USD to hover around the 1.0930 region, or three-month tops, so far on Monday.
Meanwhile, the Greenback’s performance, as 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 downtrend in the Dollar comes amidst marginal moves in US yields across the curve, against the backdrop of increasing speculation regarding potential interest rate cuts by the Federal Reserve (Fed) in spring 2024. This speculation has been fueled by weaker-than-anticipated inflation indicators (CPI and PPI) released last week.
In the domestic docket, Producer Prices in Germany contracted 0.1% MoM in October and 11.0% over the last twelve months.
In the US, the only release of note will be the Leading Index tracked by The Conference Board.
Daily digest market movers: Euro looks poised to extend the uptrend
- The EUR looks well bid against the USD on Monday.
- US and German yields advance modestly so far.
- Markets see that the Fed will lower interest rates in the first quarter of 2024.
- Investors expect the ECB to postpone the rate hike.
- Speculation of FX intervention is prevalent in the USD/JPY market.
Technical Analysis: Euro’s outlook remains constructive above the 200-day SMA
EUR/USD keeps the optimism well and sound well north of 1.0900 at the beginning of the week.
Immediately to the upside for EUR/USD comes the weekly high of 1.0945 from August 30, ahead of the psychological level of 1.1000. Further north, the pair might come into contact with the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all preceding the 2023 high of 1.1275 (July 18).
Occasional bearish moves, on the other side, should meet initial support at the critical 200-day Simple Moving Avergae (SMA) at 1.0805, seconded by the temporary 55-day SMA at 1.0644. South from here emerges the weekly low of 1.0495 (October 13) prior to the 2023 low of 1.0448 (October 3).
Looking at the big picture, the pair’s prospects should remain positive as long as it trades above the 200-day SMA.
German economy FAQs
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.
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.
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.
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.
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).
Source: https://www.fxstreet.com/news/euro-climbs-to-new-multi-week-tops-near-10950-202311200956