Forex

Euro maintains the familiar range so far

Time Stamp: June 28, 2023 7:22 AM
Source Node: 2568689

Republished By Plato

The Euro extends the beraish note into the European midday.
Stocks in Europe advance at a firm pace on Wednesday.
EUR/USD hovers around the 1.095/60 band amidst risk-off mood.
Germany’s Consumer Confidence worsens in July.
Investors will closely follow events from the ECB Forum.

The recent two-day advance of the Euro (EUR) was somewhat limited due to renewed buying interest in the US Dollar (USD), leading to a partial retracement of the weekly gains for EUR/USD. As a result, the pair revisited the 1.0930 region early in the morning on Wednesday, where some initial contention appears to have turned up.

The positive performance of the Greenback also provided some relief to the USD Index (DXY), which had experienced negative performance earlier in the week. That said, the index keeps hovering around the interim 55-day SMA near 102.60.

The current knee-jerk in the pair comes along a tepid retracement in both the US and German yields so far, all amidst expectations of a quarter-point interest rate hike by both the European Central Bank (ECB) and the Federal Reserve (Fed) at their respective meetings in July.

Moving forward, the potential future actions of the Fed and the ECB in normalizing their monetary policies remain a topic of ongoing debate. This discussion takes place against the backdrop of increasing speculation about an economic slowdown on both sides of the Atlantic.

Regarding monetary policy, a notable event on Wednesday will be a Policy Discussion Panel at the ECB Forum on Central Banking in Sintra, Portugal. The panel will feature Chief Jerome Powell and ECB President Christine Lagarde, participating in the European afternoon.

In terms of data, consumer confidence in Germany, as measured by GfK, weakened to -25.4 for the month of July. In Italy, preliminary inflation figures see the CPI rising 6.4% YoY in June, coming in short of expectations and lower than May’s 7.6% yearly advance.

Across the Atlantic, Mortgage Applications tracked by the Mortgage Bankers Association (MBA) expanded 3.0% in the week to June 23, while the 30-Year Mortgage Rate ticked higher to 6.75% (from 6.73%). Next on tap comes the preliminary figures for the Goods Trade Balance for the month of May.

Daily digest market movers: Euro fails to gather traction despite hawkish comments

The EUR faces some selling interest in response to USD recovery.
Germany’s Consumer Confidence disappoints expectations in July.
ECB Lagarde-Fed Powell will take centre stage later on Wednesday.
ECB’s Vice-President Luis De Guindos favours a rate hike in July.
ECB’s Boris Vujcic leaves the door open to a September hike.
Board member Bostjan Vasle advocated for further tightening.

Technical Analysis: Euro could see its gains accelerate above 1.1012

EUR/USD appears under pressure and should the selling bias gather impulse it could face initial support at the transitory 55-day SMA at 1.0883. The loss of this level exposes a deeper pullback to the June low at 1.0844 (June 23) ahead of the provisional 100-day SMA at 1.0814. South from here emerges the May low of 1.0635 (May 31) prior to the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).

If bulls regains the upper hand, the next hurdle is then expected at 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 1.1181, 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 1.0578.

Interest rates FAQs

What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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.