Euro remains well offered and risks another breach of 1.0700

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  • The Euro meets daily resistance near 1.0770 vs. the US Dollar.
  • Stocks in Europe extend the mixed fashion on Tuesday.
  • EUR/USD’s upside momentum falters ahead of 1.0770.
  • The USD Index (DXY) regains some balance following Monday’s drop.
  • Germany Economic Sentiment improves a tad in September.
  • The NFIB index and the API report are due next in the US docket.

The Euro (EUR) fades the auspicious start of the week against the US Dollar (USD), prompting EUR/USD to return to negative territory and trade close to the 1.0700 neighbourhood after climbing to as high as the 1.0770 region earlier on Tuesday.

In the meantime, the Greenback reclaims some buying interest following Monday’s strong retracement and encourages the USD Index (DXY) to shift its attention to the key hurdle at 105.00 the figure so far.

In terms of monetary policy, the anticipation of a potential interest rate hike by the Federal Reserve (Fed) in November seems to have waned recently, while market participants persist in factoring in the likelihood of rate cuts taking place at some stage in the second quarter of 2024.

Turning our attention to the European Central Bank (ECB), market discussions seem to lean towards a pause at the September 14 meeting and a quarter-point rate raise by year’s end, given the current state of a somewhat divided Council.

Back to the euro calendar, the Economic Sentiment gauged by the ZEW Institute improved to -11.4 in September in Germany and worsened to -8.9 when it comes to the broader euro area. In the US, the NFIB Business Optimism Index receded to 91.3 during last month, while the usual weekly report on US crude oil supplies by the API is due later in the NA session.

Daily digest market movers: Euro looks cautious ahead of US CPI, ECB

  • The EUR gives away part of Monday’s gains vs. the USD.
  • The absence of direction prevails in the US, German yields so far.
  • Markets see the ECB keeping the deposit rate unchanged this week.
  • UK Unemployment Rate ticked higher to 4.3% in July.
  • BoE's Sarah Breeden said the bank does not forecast a recession.
  • Investors continue to price in Fed rate cuts in Q2 2024.
  • Final inflation figures in Spain saw the headline CPI rise 2.6% YoY in August.

Technical Analysis: Euro faces extra losses once 1.0700 is cleared

EUR/USD resumes the downward bias and refocuses on the 1.0700 region and potentially below so far on Tuesday.

In case EUR/USD succeed in breaking below the September low at 1.0685 (September 7), it could undergo a retesting phase of the May low at 1.0635 (May 31) before potentially reaching the March low of 1.0516 (March 15). If the latter level is breached, it could initiate a possible examination of the 2023 low at 1.0481 (January 6).

On the contrary, regarding upward movement, the current emphasis is on targeting the crucial 200-day SMA at 1.0824. Beyond that point, a bullish momentum might lead to a challenge of the weekly peak at 1.0945 (August 30), further supported by the provisional 55-day SMA at 1.0937. Subsequently, this scenario could pave the way for an advance towards the psychological level of 1.1000 and the August high at 1.1064 (August 10). If spot clears this area, it could alleviate some of the bearish pressure and potentially aim for the weekly peak at 1.1149 (July 27), followed by the 2023 top at 1.1275 (July 18).

It's worth noting that as long as the EUR/USD remains below the 200-day SMA, there is a likelihood of a sustained decline in the pair.

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).



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