- The Euro remains on the defensive against the US Dollar.
- Stocks in Europe keep the negative price action on Thursday.
- EUR/USD deflates to weekly lows near 1.0530.
- The USD Index (DXY) extends the upside and approaches 107.00.
The Euro (EUR) is augmenting its frailty vis-à-vis the US Dollar (USD), thereby inducing EUR/USD to relinquish more ground to weekly footings nearing 1.0530 during the afternoon in Europe on Thursday.
Concurrently, the Greenback is recouping further equilibrium following supplementary additions on Wednesday, guiding the USD Index (DXY) to environs of the pivotal threshold at 107.00. The Dollar’s daily strengthening emerges counter to a blended execution in US yields over divergent maturities.
The offered bias prevails around the single currency after the European Central Bank (ECB) matched expectations and left its interest rates unchanged at its event on Thursday. At its statement, the ECB reiterated that inflation is seen higher for longer, at the time when the Council stated that current rate levels must be maintained for a sufficiently long period.
Still around monetary policy, there is a growing consensus among market participants that the Federal Reserve (Fed) will maintain its current stance of keeping interest rates unchanged at the meeting on November 1. This view has been reinforced by remarks made by Fed Chair Jerome Powell in his recent speech at the Economic Club of New York on October 19.
Data-wise, in the US, the flash Q3 GDP Growth Rate will be at the centre of the debate, seconded by weekly Initial Jobless Claims, Pending Home Sales, Durable Goods Orders and preliminary Goods Trade Balance.
Daily digest market movers: Euro remains offered after ECB
- The EUR’s decline picks up extra pace against the USD on Thursday.
- US and German yields trade amidst a broad-based decline.
- A 25 bps rate hike by the Fed remains on the table for December.
- The ECB is seen entering a (protracted?) pause at its meeting on Thursday.
- Geopolitical concerns in the Middle East remain steady.
- The move above 150.00 in USD/JPY reignites intervention talk.
- Investors’ attention will also be on Lagarde’s press conference.
- US GDP figures are expected to show further resilience of the economy.
Technical Analysis: Euro leaves the door open to a test of 1.0450
EUR/USD extends the bearish note to fresh weekly lows and shifts its attention to a potential visit to the 1.0500 neighbourhood.
If the selling trend continues, immediate support may be located near the October 13 low of 1.0495, followed by the 2023 low of 1.0448 seen on October 3 before hitting the round level of 1.0400. If this zone is crossed, the pair may continue to fall towards the lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
If bulls retake control, EUR/USD will find initial resistance around the Wednesday’s top of 1.0694, which looks underpinned by the vicinity of the temporary 55-day Simple Moving Average (SMA). The breakout of this zone reveals the September 12 high of 1.0767, which precedes the significant 200-day SMA at 1.0813. Once this level is cleared, it might signal a further push towards the August 30 peaks of 1.0945, prior to the psychological milestone of 1.1000. If the rising trend continues, the August 10 peak of 1.1064 might be challenged, seconded by the July 27 high of 1.1149, and possibly even the 2023 top of 1.1275 seen on July 18.
As long as the EUR/USD continues below the 200-day SMA, the pair may face persistent negative pressure.
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-drops-to-fresh-lows-near-10530-ahead-of-ecb-lagarde-202310260759