- Euro regains composure and advances past 1.0900 vs. the US Dollar.
- Stocks in Europe trade mostly with gains on Friday.
- EUR/USD manages to trespass the 1.0900 region to 4-day highs.
- US jobs report showed mixed readings during last month.
- ECB’s Christine Lagarde speaks later in the day.
The Euro (EUR) manages to regain some shine and advances to fresh multi-day highs north of 1.0900 the figure vs. the U.S. Dollar (USD) on Friday, allowing some breathing space in EUR/USD while keeping the optimism well in place in the second half of the week.
The USD Index (DXY) now slips back well south of the 103.00 support after mixed figures from the US Nonfarm Payrolls for the month of June. The corrective move in the US Dollar comes amidst the absence of traction in US yields across the curve against the backdrop of steady speculation of further tightening by the Fed.
Debate continues around the potential future moves by the Federal Reserve and European Central Bank (ECB) to normalize monetary policy, as concerns grow about slowing growth on both sides of the Atlantic.
Recent strong U.S. economic data, reflecting a tight labor market and resilient economy, has reinforced expectations the Fed will likely hike rates by a quarter point at its July meeting.
Back at the ECB, Vicepresident Luis De Guindos said that their job was not yet done and mentioned that while underlying price pressures continued to be strong, most indicators had started to display some signs of softening. He noted that services had become an important driver of inflation and emphasized that the evolution of core inflation would be crucial for future ECB policy decisions. De Guindos also pointed out that it was uncertain what would happen to rates in September.
In the domestic data space, Industrial Production in Germany contracted 0.2% MoM in May, while Retail Sales in Italy expanded 0.7% also in May vs. the previous month.
Across the Atlantic, US economy created 209K jobs in June according to Nonfarm Payrolls, while the Unemployment Rate eased to 3.6% in the same period. In addition, Average Hourly Earnings – a proxy for wage inflation – rose 0.4% MoM and 4.4% from a year earlier. Finally, the Participation Rate held steady at 62.6%.
Daily digest market movers: Euro advances to fresh tops past 1.0900
- The EUR regains composure and breaks above the 1.0900 yardstick.
- Germany’s Industrial Production surprised to the downside.
- US jobs report came in a tad below expectations in June.
- Investors continue to price in a 25 bps hike by the Fed in July.
- ECB’s De Guidos said the September meeting remains an open question.
- ECB’s Lagarde speaks later in the session.
Technical Analysis: Euro shifts its focus to 1.1000 and above
The inability of EUR/USD to gather some convincing upside traction has prompted sellers to remain in control of the pair for the time being.
That said, the loss of the weekly low at 1.0833 (July 6) could open the door to a test of the interim 100-day SMA at 1.0826. The breakdown of the latter should meet the next contention area not before the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).
On the other hand, occasional bullish attempts should clear the 1.0900 region to expose a potential move to the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0618.
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.