- The Euro reverses its daily against the US Dollar.
- Stocks in Europe trade with decent gains on Friday.
- EUR/USD gives away earlier advance and confronts 1.0500.
- The USD Index (DXY) gathers fresh traction post-Payrolls.
- Factory Orders in Germany expanded in August.
- The US Nonfarm Payrolls nearly doubled estimates in September.
The Euro (EUR) now sees its earlier optimism trimmed against the US Dollar (USD), motivating EUR/USD to return to the negative territory and challenge the key support at 1.0500 the figure at the end of the week.
Meanwhile, the Greenback picks up pace and revisits the 106.80 when tracked by the USD Index (DXY) on the back of the post-NFP bounce in US yields across different time frames and renewed speculation of a rate hike by the Fed before year-end.
In terms of monetary policy, investors now see the Federal Reserve (Fed) raising its interest rates before the end of the year. At the same time, market speculation continues about the European Central Bank (ECB) potentially pausing policy adjustments, despite inflation levels surpassing the bank’s target and growing concerns about a future recession or stagflation in the region.
On the euro calendar, Factory Orders in Germany expanded at a monthly 3.9% in August, while Retail Sales in Italy contracted 0.4% on month also in August.
In the US data space, Nonfarm Payrolls rose by 336K jobs in September and the Unemployment Rate held steady at 3.8%. In addition, Average Hourly Earnings rose 4.2% from a year earlier and the Participation Rate remained unchanged at 62.8%. Later in the session, Consumer Credit Change for the month of August are also due, along with a speech by FOMC Governor Christopher Waller (permanent voter, hawk).
Daily digest market movers: Euro challenges 1.0500 on firmer Payrolls
- The EUR comes under renewed downside pressure and retests 1.0500 against the USD.
- The rebound in US and German yields gather extra steam on Friday.
- Investors’ bets for a 25 bps rate hike by the Fed now appear on the rise.
- Markets see the ECB pausing its hiking campaign.
- ECB’s Isabel Schnabel does not rule out a mild recession.
- German government projects a 0.4% contraction of the economy in 2023.
- Market talks about FX intervention in USD/JPY appear unabated.
Technical Analysis: Euro could still revisit 1.0448
EUR/USD regains traction, advancing further north of 1.0500 on Friday.
The potential resumption of selling pressure on EUR/USD may lead to a revisit of the 2023 low at 1.0448 (October 3), with the possibility of testing the significant round level of 1.0400. If this level is surpassed, it could open the door for a potential retest of the weekly lows at 1.0290 (November 30, 2022), and 1.0222 (November 21, 2022).
On the other hand, if the pair continues to gain momentum, it could target the next upside barrier at 1.0617 (September 29), followed by the critical 200-day SMA at 1.0823. Breaking beyond this level might lead to a test of the weekly top of 1.0945 (August 30), before the psychological threshold of 1.1000. Should the pair trespass the weekly peak of 1.1064 (August 10), it could encounter another weekly top at 1.1149 (July 27) and even the 2023 high at 1.1275 (July 18).
However, as long as the EUR/USD remains below the 200-day SMA, there is a possibility of further bearish pressure.
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.
