EUR/USD Experiences Mild Downturn Amid Dominant Hawkish Fed Sentiment
The EUR/USD is experiencing marginal declines, hovering around the 1.0780 mark, as it tests a support trendline that dates back 5.5 months. This occurs during the initial hours of Tuesday’s European trading session. This downturn follows the currency pair’s previous recovery from the aforementioned support, amid a lack of assertive stances from European Central Bank (ECB) officials and a resolute US Dollar, buoyed by yield movements, ahead of forthcoming data from both the Eurozone and the US.
A notable revelation came from an August 31 interview with ECB’s Chief Economist, Phillip Lane, featured in the Irish Business publication, “The Currency.” In it, he acknowledged the easing observed in the August inflation data, emphasizing the necessity of such trends to stymie hawkish tendencies.
ECB President Christine Lagarde, on Monday, underscored the imperative for central banks to steadfastly anchor inflation expectations. A sentiment echoed by Joachim Nagel, President of the Deutsche Bundesbank and an ECB Council Member, who championed price stability, albeit without delving into specifics.
Interestingly, recent positive US Nonfarm Payrolls (NFP) data and Moody’s upgrade of US growth projections provide credence to the hawkish apprehensions regarding the Federal Reserve, thereby exerting pressure on the Euro. Meanwhile, Cleveland Fed President Loretta J. Mester justified the central bank’s hawkish trajectory and dismissed the possibility of a rate cut in her recent address.
Externally, global skepticism surrounding China’s economic defense mechanisms, coupled with escalating Sino-US tensions, especially pertaining to Taiwan and US corporate unease in Beijing, are buttressing the US Dollar. Recent reports indicate that China has unveiled a comprehensive set of measures aimed at shielding its economy from COVID-19’s repercussions. In tandem, news emerged of China’s leading real estate firm, Country Garden, successfully averting a default.
In this context, the US Dollar Index (DXY) is registering slight gains, currently positioned at approximately 104.25, after momentarily halting its two-day ascendancy. Concurrently, the S&P 500 Futures are marking modest declines, whereas the US 10-year Treasury yields have surged by three basis points to stand at 4.21%, post a holiday-induced lull.
In terms of economic indicators, the Eurozone Sentix Investor Confidence Index, along with the Expectations Index, showed a downtrend for September. Furthermore, the Current Situation Index plummeted to its lowest since November 2022, intensifying the bearish sentiment surrounding the EUR/USD pair.
Going forward, the prevalent skepticism towards the ECB’s hawkish members, juxtaposed with the subdued economic data from the Eurozone, keeps the EUR/USD bears optimistic. All eyes are now on the Eurozone’s Producer Price Index (PPI) data for July, which will provide pivotal guidance, preceding the US Factory Orders for the same month.
Technical Analysis:
The EUR/USD pair’s inability to sustain its recovery momentum, which began at the start of the week from a support line dating to March 15, just around 1.0780, beyond the 200-DMA threshold of 1.0820, coupled with the bearish MACD indications, amplifies the bearish sentiment among Euro investors.
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