- The Euro clings to daily gains vs. the US Dollar.
- Stocks in Europe trade with generalized losses on Monday.
- EUR/USD shifts its focus to a potential test of 1.0700.
- The USD Index (DXY) remains offered in the low-105.00s.
- The FOMC gathering will be the salient event this week.
- The US NAHB index takes centre stage later in the session.
The Euro (EUR) gains momentum against the US Dollar (USD), motivating bullish sentiment that pushes EUR/USD towards the vicinity of daily highs, reaching around 1.0680 as the new week begins.
Although the Greenback experiences some mild downward pressure, it still holds its position above the crucial 105.00 level, as indicated by the USD Index (DXY). This is happening amidst the persistent upward trend in US yields across various timeframes.
Regarding monetary policy, investors are still evaluating the recent dovish rate hike conducted by the European Central Bank (ECB) and maintaining their anticipation of potential interest rate cuts by the Federal Reserve (Fed) taking place in the second quarter of 2024.
On another front, EUR net longs extended the downtrend and reached levels last seen in mid-November 2022, according to the latest positioning report by the CFTC for the week ended on September 12. The period under study saw the pair climb to the 1.0750 region and quickly lose ground soon afterwards the ECB event on September 14.
The absence of data releases in the euro docket should shift attention to the US calendar, where the NAHB Housing Price Index and Long-Term TIC Flows are due in the American session.
Daily digest market movers: Euro could face some pre-FOMC consolidation
- The EUR puts further distance from recent multi-month lows vs. the USD.
- US and German yields have started the week in a positive mood.
- Investors see the Fed keeping rates unchanged this week.
- Fitch agency confirms Germany’s AAA rating with a stable outlook.
- Traders see potential rate cuts by the Fed in H1 2024.
- Expectations of an impasse in the ECB’s hiking cycle appear to be gathering traction.
- The Bundesbank’s monthly report sees the German economy contracting in Q3.
- ECB’s Peter Kazimir rules out further interest rate raises.
Technical Analysis: Euro needs to clear 1.0827 to allow for extra gains
EUR/USD looks to extend Friday’s rebound from multi-week lows near 1.0630.
If the EUR/USD breaks below its September 15 low of 1.0631, it may revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 seen on January 6.
On the upside, the critical 200-day Simple Moving Average (SMA) is located at 1.0827. Bullish momentum may develop if the pair breaks through this key barrier, leading it to a test of the provisional 55-day SMA at 1.0922 ahead of the August 30 high of 1.0945. This scenario may open the way for a rally towards the psychological level of 1.1000 and the August 10 top of 1.1064. If the pair clears this region, it may relieve some of the bearish pressure and go for the July 27 peak at 1.1149, followed by the 2023 high at 1.1275 from July 18.
As long as the EUR/USD is below the 200-day SMA, the pair might continue to fall.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
