Euro regains the smile… and the 1.0900 region
- The Euro leaves behind the recent weakness against the US Dollar.
- European stocks open Thursday’s session with decent gains.
- There will be no activity in the US due to the Thanksgiving Day holiday.
The Euro regains some upside traction against the US Dollar, encouraging EUR/USD to fade part of the recent two-day retracement and reclaim the area beyond 1.0900 the figure on Thursday.
On the flip side, the Greenback surrenders part of the recent robust bounce to the area north of the 104.00 hurdle (Wednesday) and recedes to the 103.60 region when gauged by the USD Index (DXY).
The inactivity in the US markets is expected to also magnify movements in the FX universe against the backdrop of dwindled volatility and marginal trading conditions.
The dollar's recent bounce, in the meantime, comes despite unchanged anticipation of a probable interest rate cut by the Federal Reserve (Fed) at some point in the spring of 2024, a view that is being supported by persevering disinflationary pressures data as well as further easing of the labour market .
On the domestic calendar, flash Manufacturing and Services PMIs in Germany surprised to the upside at 42.3 and 48.7, respectively, for the month of November. Later in the session, European Central Bank (ECB) will release its Accounts of the latest meeting.
Daily digest market movers: Euro reclaims the 1.0900 barrier and beyond
- The EUR regains buying interest against the USD on Thursday.
- German yields rebound after two sessions of losses.
- Investors continue to adjust to rate cuts by the Fed in H1 2024.
- Markets perceive the ECB could enter an impasse until early next year.
- China plans to boost its real estate sector with further stimulus.
Technical Analysis: Euro retargets the monthly highs
EUR/USD picks up fresh upside traction and retakes the 1.0900 hurdle and above on Thursday.
The November high of 1.0965 (November 21) is now the immediate target for bulls ahead of the key 1.1000 threshold. Further north, EUR/USD may come into contact with the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all preceding the 2023 high of 1.1275 (July 18).
Bearish rallies, on the other hand, should find first support at the major 200-day SMA at 1.0808, followed by the temporary 55-day SMA at 1.0654. The weekly low of 1.0495 (October 13) aligns south of here, before the 2023 low of 1.0448 (October 3).
Overall, the pair's prospects should remain positive as long as it remains above the 200-day SMA.
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.
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