- EUR/USD reverses an intraday dip on Monday in the wake of subdued USD demand.
- ECB officials have pushed back expectations for early rate cuts and underpin the Euro
- Hawkish Fed expectations should limit the USD downside and cap gains for the major.
The EUR/USD pair builds on its steady intraday ascent through the mid-European session and climbs to a fresh daily top, closer to the 1.0850 region in the last hour. The shared currency continues to draw support from the fact that European Central Bank (ECB) officials recently downplayed market speculations about early interest rate cuts. This, along with the emergence of some US Dollar (USD) selling contributes to the currency pair’s intraday goodish rebound of around 35-40 pips.
That said, a looming recession in Germany – the Eurozone’s largest economy– might hold back traders from placing aggressive bullish bets around the shared currency. Furthermore, growing acceptance that the Federal Reserve (Fed) will keep rates higher for longer could act as a tailwind for the US bond yields and the USD. This warrants some caution before positioning for any further gains for the EUR/USD pair ahead of the flash Eurozone CPI and the US Core PCE Price Index this week.
Daily digest market movers: EUR/USD draws support from weaker USD, upside potential seems limited
- European Central Bank policymakers continue to push back against expectations for early interest rate cuts, which lends support to the EUR/USD pair.
- ECB’s Robert Holzmann said on Friday that the main risk to rate cuts is the Red Sea tension and that it is better to cut interest rates later than to do so too early.
- Adding to this, ECB’s executive board member Isabel Schnabel noted that monetary policy has had a weaker impact on dampening demand for services.
- Furthermore, ECB policymaker and Bundesbank Chief Joachim Nagel said that it is too early to cut interest rates as the price outlook is not yet clear enough.
- Separately, ECB President Christine Lagarde said that bargaining rounds in the first quarter will be key for the upcoming decisions on interest rates.
- Retreating US Treasury bond yields fail to assist the US Dollar to build on last week’s recovery from its lowest level since early February and further lends support.
- The FOMC meeting minutes, along with hawkish remarks by several Federal Reserve officials, reaffirmed bets that the US central bank will keep rates higher for longer.
- The Bundesbank, in its latest monthly report, warned that the German economy is likely in recession and might keep a lid on any further upside for the currency pair.
Technical analysis: Acceptance above 200-day SMA supports prospects for a further appreciating move
From a technical perspective, last week’s sustained move beyond the 23.6% Fibonacci retracement level of the December-February fall was seen as a key trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and validate the positive outlook. That said, it will still be prudent to wait for a move above the very important 200-day Simple Moving Average (SMA) before positioning for additional gains.
The EUR/USD pair might then aim to surpass the 1.0865 zone or the 38.2% Fibo. level, before aiming to retest the multi-week high touched last Thursday. Some follow-through buying beyond the 1.0900 mark should lift the EUR/USD pair further towards the 50% Fibo. level, around the 1.0965-1.0970 region. The momentum could extend further and allow bulls to reclaim the 1.1000 psychological mark for the first time since January 11.
On the flip side, the 1.0800 mark, or the 23.6% Fibo. level might continue to protect the immediate downside. Any further slide is likely to attract fresh buyers near the 1.0760 horizontal zone. The latter should act as a pivotal point, which if broken will suggest that the recent recovery from a three-month low has run out of steam already and make the EUR/USD pair vulnerable to accelerate the fall towards retesting sub-1.0700 levels.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.08% | 0.03% | 0.12% | 0.22% | -0.05% | 0.29% | -0.06% | |
| EUR | 0.07% | 0.10% | 0.19% | 0.30% | 0.03% | 0.37% | 0.01% | |
| GBP | -0.02% | -0.10% | 0.10% | 0.20% | -0.07% | 0.27% | -0.08% | |
| CAD | -0.12% | -0.20% | -0.10% | 0.11% | -0.18% | 0.16% | -0.19% | |
| AUD | -0.25% | -0.32% | -0.21% | -0.12% | -0.27% | 0.05% | -0.31% | |
| JPY | 0.05% | -0.03% | 0.13% | 0.17% | 0.31% | 0.32% | -0.02% | |
| NZD | -0.30% | -0.35% | -0.25% | -0.18% | -0.07% | -0.32% | -0.36% | |
| CHF | 0.05% | -0.02% | 0.09% | 0.18% | 0.30% | 0.01% | 0.34% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Read the full article here
