- The Euro flirts with the 55-day SMA against the US Dollar.
- European stocks navigate a “sea of green” so far on Tuesday.
- Eurozone flash Inflation Rate saw the CPI retreating further in October.
The Euro (EUR) keeps the optimism well and sound in the first half of the week against the US Dollar (USD), lifting EUR/USD to new five-day highs in the proximity of 1.0675 on Tuesday, an area also coincident with the temporary 55-day SMA.
On the other side of the equation, the Greenback comes under extra downside pressure and forces the USD Index (DXY) to pierce the key support of 106.00 amidst a broad-based improvement in the risk appetite. The persistent decline in the Greenback comes in tandem with an equally weak tone in US yields across the curve.
In the context of monetary policy, there is a growing agreement among market participants that the Federal Reserve (Fed) is likely to maintain its current position of keeping interest rates unchanged at Wednesday’s meeting. Nonetheless, there is a possibility of a rate adjustment in December, which appears to be supported by the continued strength of the US economy and still-high inflation levels.
In the domestic calendar, Retail Sales in Germany contracted 4.3% in the year to September. In the broader Eurozone, advanced Inflation Rate for October saw the CPI rising 2.9% YoY, while flash Q3 Gross Domestic Product (GDP) Growth Rate expect the economy to contract 0.1% QoQ and expand 0.1% YoY.
In the US data space, the Employment Cost index is due, seconded by the FHFA House Price Index and the key Consumer Confidence measured by The Conference Board.
Daily digest market movers: Euro looks to consolidate the breakout of 1.0600
- The EUR trades with decent gains against the USD.
- US and German yields are poised to resume the downside.
- The Fed could still hike rates by 25 bps in December.
- The ECB is expected to maintain its monetary policy impasse until H2 2024.
- Geopolitical concerns in the Middle East remain unabated.
- The BoJ tweaked its YCC programme at its meeting earlier on Tuesday.
- Chinese PMIs surprised to the downside in October.
Technical Analysis: Euro’s outlook remains bearish below the 200-day SMA
EUR/USD extends the positive price action further north of the 1.0600 hurdle on Tuesday.
Next on the upside for EUR/USD comes the interim 55-day Simple Moving Average (SMA) at 1.0669 prior to the October peak of 1.0694 (October 24). The breakout of this level exposes the weekly top of 1.0767 (September 12) ahead of the crucial 200-day SMA at 1.0809, while another weekly high of 1.0945 (August 30) comes before the psychological barrier of 1.1000. Beyond this region, the pair may encounter resistance at the August peak of 1.1064 (August 10), ahead of the weekly top of 1.1149 (July 27) and the 2023 high of 1.1275 (July 18).
The resumption of the bearish mood could drag the pair to the weekly low of 1.0495 (October 13), ahead of the lowest level in 2023 at 1.0448 (October 15), and the round number of 1.0400.
The pair’s outlook is predicted to continue bearish as long as it remains below the crucial 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).
