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- The Euro remains stuck in the bearish side against the US Dollar.
- European stocks keep the mixed bias on Monday.
- ECB C. Lagarde, US Factory Orders next on tap.
The Euro (EUR) endures ongoing selling pressure relative to the US Dollar (USD) at the outset of Monday’s trading session, motivating EUR/USD to approach the mid-1.0800s.
Conversely, the Greenback appears to be enjoying tepid buying interest circa 103.40 when gauged by the performance of the US Dollar Index (DXY), partially offsetting an earlier movement higher toward the key 200-day SMA in the vicinity of 103.60.
Considering the broader economic landscape, investors consider potential interest rate reductions by both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
In the Eurozone docket, Germany’s trade surplus widened to €17.8B in October. Later in the session, ECB’s Vice Chair of the Supervisory Board Frank Elderson and President Christine Lagarde are due to speak.
Across the ocean, US Factory Orders for the month of October will be in the limelight.
Daily digest market movers: Euro appears cautious ahead of Lagarde
- The EUR starts the week on the defensive against the USD.
- US and German yields trade in a positive note.
- Investors see the Fed reducing its rates in Q2 2024.
- The ECB could start cutting rates in the spring of 2024, according to markets.
- ECB’s Vice President Luis De Guindos reiterated the bank’s data-dependent stance.
- EMU Sentix Index improved a tad to -16.8 in December.
- Lagarde will speak later in the session, around 14:00 GMT.
Technical Analysis: Euro’s next resistance aligns at 1.1017
EUR/USD kicks off the new week with a modest retracement, although it still manages to keep the trade above the key 200-day Simple Moving Average (SMA) at 1.0818.
If the EUR/USD continues to experience further losses, it could potentially face the mentioned 200-day SMA as an initial point of support. In the event of a breach, the 55-day SMA at 1.0682 is likely to provide temporary support. However, if this level is also cleared, it would expose the weekly low of 1.0495 (October 13), followed by the 2023 low of 1.0448 (October 3) and the psychological level of 1.0400.
If there are occasional bullish attempts, they are likely to encounter immediate resistance at the November peak of 1.1017 (November 29). This is followed by the August high of 1.1064 (August 10) and another weekly top of 1.1149 (July 27). These levels act as hurdles before reaching the 2023 peak of 1.1275 (July 18).
The pair is anticipated maintaining its bullish outlook while remaining 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).
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