Euro remains under pressure around 1.0650, focus on Lagarde
After initially dropping to new multi-month lows, the Euro (EUR) was able to recover most of its losses against the US Dollar (USD), causing EUR/USD to climb back above the 1.0650 level during midday trading in Europe.
Meanwhile, the USD Index (DXY) continued its upward momentum and reached new six-month highs around 105.70 earlier in the European trading session pari passu with investors processing the recent Federal Reserve (Fed) event.
The Dollar's uptick, however, fizzled out and sparked a corrective move in the index to the mid-105.00s against the backdrop of a knee-jerk in the short end of the US yield curve vs. the continuation of the march north in the belly and the long end. Meanwhile, the 10-year bund yields regain the area of recent peaks near 2.75%.
Following the hawkish hold by the Fed at its meeting on Wednesday, Chairman Jerome Powell emphasized that there is still a significant journey ahead in achieving the target inflation rate of 2%. Additionally, he stated that the FOMC decided to maintain the current interest rates in light of the progress made thus far but remains prepared to raise rates when deemed suitable.
In the eurozone's economic calendar, the preliminary reading of Consumer Confidence tracked by the European Commission is due, along with a speech by the ECB President Christine Lagarde.
In the US, usual weekly Initial Jobless Claims are due, followed by the Philly Fed Manufacturing Index, the CB Leading Economic Index and Existing Home Sales.
Daily digest market movers: Euro looks to USD for direction
- The EUR rebounds from fresh lows against the USD.
- US and German yields advance marginally on Thursday.
- The Fed left the door open to another 25 bps rate raise in the next months.
- The BoE surprises everybody and leaves rates unchanged at 5.25%.
- Markets price in probable rate cuts by the Fed in Q3 2024.
- An impasse in the ECB’s hiking cycle appears to be gathering traction.
- ECB's Joaquim Nagel says it is not clear whether the bank hit the peak rate yet.
- ECB's Martin Kazaks favours keeping the restrictive stance for longer.
- ECB's Yannis Stournaras suggests rates have peaked and the next move could be a cut.
- The SNB unexpectdely kept rates on hold at 1.75% (vs. an expected 25 bps hike)
- Intervention fears surround the price action around USD/JPY.
Technical Analysis: Euro risks a deeper decline below the 200-day SMA
EUR/USD reverses Thursday’s decline to multi-month lows near 1.0615, although the pair's outlook remains tilted to the bearish side for the time being.
If the EUR/USD breaches its September 14 low of 1.0616, there is a chance it could revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 from January 6.
On the upside, there is a minor resistance level at the weekly high of 1.0767 from September 12, followed by the more significant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could pave the way for a continued recovery towards the temporary 55-day SMA at 1.0911, with the possibility of reaching the August 30 top of 1.0945. Surpassing the latter could bring the psychological level of 1.1000 into focus, followed by the August 10 peak of 1.1064. Beyond that, the pair might retest the July 27 high at 1.1149 and potentially reach the 2023 top at 1.1275 from July 18.
As long as the EUR/USD remains below the 200-day SMA, there is a chance that the pair will continue to face downward pressure.