EUR/USD nears 1.1200 as traders brace for ECB Lagarde and Fed Powell speeches

Vaseline2 weeks ago

0 5 minutes read

EUR/USD nears 1.1200 as traders brace for ECB Lagarde and Fed Powell speeches

EUR/USD aims to recover 1.1200 despite a further slowdown in price pressures in six German states in September.
The ECB’s Lagarde could hint at whether the central bank will cut interest rates again in October.
The Fed’s Powell will provide guidance on the likely size of a rate cut in November.

EUR/USD is moving higher to near 1.1200 in the European trading session on Monday. The major currency pair is rising despite annual flash consumer price index (CPI) data from six German states showing price pressures decelerated further in September. Month-on-month inflation rose at a faster pace than market participants saw in August, but was in the 0.2% range.

On Friday, France’s flash consumer price index (EU norm) and Spain’s harmonized index of consumer prices (IAPC) data also showed price pressures rose at a slower pace than expected in September.

A further slowdown in inflationary pressures led to market expectations of the European Central Bank (ECB) to cut interest rates again in the October meeting. Investors increased their bets on Friday for another rate cut on Oct. 17 and now assessed a roughly 75 percent chance of a move, compared with just a 25 percent chance seen last week, Reuters reported. The ECB also cut its deposit facility rate by 25 basis points (bp) to 3.5% at its September 12 policy meeting.

Going forward, the euro (EUR) is expected to remain highly volatile as investors await preliminary German and Eurozone HICP data for September, which will be released on Monday and Tuesday, respectively.

In today’s session, investors will also pay close attention to ECB President Christine Lagarde’s speech at 13:00 GMT, where she is expected to provide clues about the likely path of interest rate cuts for the rest of the year.

Daily market reasons: EUR/USD moves higher despite further deceleration in inflation in six German states

EUR/USD rose on Monday as the US dollar (USD) remains under pressure ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech, which is scheduled for 17:00 GMT. Investors expect Powell to provide further clues about the likelihood of a rate cut by the Fed at its November policy meeting.
According to the CME FedWatch tool, the probability that the Fed will cut interest rates by 50 basis points (bps) at the November meeting to a range of 4.25%-4.50% is 41.6% at the time of writing. The probability fell from nearly 53.0% on Friday after the release of the United States (US) August Personal Consumption Expenditure (PCE) Price Index report.
The PCE price index report showed on Friday that annual inflation decelerated at a faster pace to 2.2 percent from estimates of 2.3 percent and July’s reading of 2.5 percent. This was the lowest reading since February 2021. However, its impact appeared to be offset by annual core PCE inflation – which excludes volatile food and energy prices – which accelerated to 2.7% from the previous release of 2.6%, as expected, diminishing the chances of double dose rate reduction in the next meeting.
Lately, Fed policymakers have focused more on preventing job losses and an economic slowdown, with growing confidence that inflation will return to the bank’s 2 percent target. For fresh insights into the current health of the labor market, investors will focus on a range of economic data such as JOLTS Job Openings for August and ADP Employment Change and Nonfarm Payrolls (NFP) data for September due out . this week.

Technical analysis: EUR/USD is poised to recover 1.1200

EUR/USD gathers strength to recover 1.1200 in European trading hours on Monday. The main currency pair remains firm as it maintains the breakout of the Rising Channel chart formed on a daily time frame near the psychological level of 1.1000.

The upward sloping 20-day exponential moving average (EMA) near 1.1110 suggests that the short-term trend is bullish.

The 14-day Relative Strength Index (RSI) is near 60.00. A bullish momentum would be triggered if the oscillator stays above this level.

Looking to the upside, a decisive break above the round level resistance at 1.1200 will result in further appreciation from the July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support areas.

Frequently asked questions about the euro

Euro is the currency for the 19 countries of the European Union that belong to the Eurozone. It is the second most heavily traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, representing an estimated 30% discount on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of national banks in the euro area and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric element for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will typically benefit the euro as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant as they account for 75% of the euro area economy.

Another important piece of information for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, then its currency will only gain in value from the additional demand created by foreign buyers wanting to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

Vaseline2 weeks ago

0 5 minutes read

Daily market reasons: EUR/USD moves higher despite further deceleration in inflation in six German states

Technical analysis: EUR/USD is poised to recover 1.1200

Frequently asked questions about the euro

Vaseline

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