Euro clings to daily gains near 1.0950, looks at Lagarde speech, Fed Minutes

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  • The Euro gives away some gains against the US Dollar.
  • European stocks reverse the initial optimism on Tuesday.
  • The FOMC Minutes and ECB Lagarde’s speech will grab all the attention later in the day.

The Euro (EUR) comes under some pressure against the US Dollar, motivating EUR/USD to trim part of the earlier uptick to new three-month peaks in the 1.0960-1.0965 band, a region unseen since mid August, where some initial resistance seems to have emerged so far.

On the other side of the coin, the Greenback, gauged by the USD Index (DXY), manages to bounce off recent lows in the 103.20 zone despite the so-far tepid bearish note in US yields across the curve.

The Dollar’s pullback is fueled by growing speculation about a potential Federal Reserve (Fed) interest rate cut in spring 2024, which remains underpinned by lower-than-expected inflation indicators (CPI and PPI) released last week.

On the European docket, European Central Bank’s (ECB) President Christine Lagarde will speak on “Inflation kills democracy” in Germany.

Across the ocean, the FOMC Minutes of the November 1 meeting takes the centre stage, seconded by Existing Home Sales data and the Chicago Fed National Activity Index.

Daily digest market movers: Euro meets initial resistance around 1.0960

  • The EUR’s upside runs out of some steam against the USD on Tuesday.
  • US and German yields remain on the defensive so far.
  • Investors continue to price in interest rate cuts by the Fed in Q1 2024.
  • Markets expect the ECB to extend its pause until early next year.
  • BoE’s Governor Andrew Bailey showed concerns over pesistent inflation.
  • ECB’s Gediminas Simkus rules out another hike in December.
  • The RBA Minutes came in on the hawkish side.

Technical Analysis: Euro maintains its constructive outlook above 1.0800

EUR/USD extends the bullish move to fresh multi-week tops, exceeding 1.0960 on Tuesday.

The November high of 1.0965 (November 21) is currently just ahead of the psychological milestone of 1.1000 for EUR/USD. Further north, the pair might run into the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all of which precede the 2023 high of 1.1275 (July 18).

On the other hand, occasional bearish rallies should find first support at the key 200-day SMA at 1.0806, seconded by the temporary 55-day SMA at 1.0648. South of here, the weekly low of 1.0495 (October 13) appears before the 2023 low of 1.0448 (October 3).

Overall, the pair’s chances should stay strong as long as it continues to trade 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).