EUR/USD bounces at start of US trading session with recovery in US looking bleak
|- EUR/USD eases Tuesday after it briefly peaked above 1.10 on Monday.
- Markets see safe havens easing while US Dollar gains mildly.
- Monthly Germany’s Factory Orders unexpectedly surged 3.9% in June.
EUR/USD halts its decline at the US opening bell and bounce just before EUR/USD was on its way to test 1.09 for a break lower. EUR/USD has retreated off its peak performance from Monday at 1.1008 when markets were spooked by recession fears, sparking an equity crisis in Asia where the two major Japanese indices, the Nikkei and the Topix, lost over 10% of value in just one trading day. Markets are recovering on Tuesday, with the US Dollar (USD) gaining against its peers and recovering some of the incurred losses from Monday.
The EUR/USD correction on Tuesday does not look to be very big or quick. Germany’s June Factory Orders data underpins the Euro (EUR) after a stellar performance. Expectations were for a very mild 0.8% month-over-month increase in June after a decline of 1.6% in May. The data exceeded expectations by coming in at a positive 3.9%.
Just ahead of the US opening bell, US Goods and Services Trade balance numbers for June came out. The May deficit got revised to 75 billion USD, in stead of 75.1 billion. The June number fell below the expected deficit fo 72.4 billion USD and came in at 73.1 billion USD.
Overnight, President of the Federal Reserve Bank of Chicago Austan Goolsbee and San Francisco Federal Reserve President Mary Daly calm traders' nerves in the market. Both US Federal Reserve (Fed) officials said that a few softer numbers are no reason for concern and that the job market is still holding strong, with no substantial and widespread permanent layoffs taking place. Recession fears may have eased for now, though markets are starting to get afraid that the Fed has overpromised on rate cuts and might underdeliver when the moment is there to act.
Daily digest market movers: No conviction there yet
- On Tuesday, the Asian session started off quite quickly, with Japan’s Nikkei and Topix equity indices hitting their circuit breakers. This time, this was due to substantial moves to the upside, in contrast to their sharp declines earlier this week.
- The US Dollar sees some strength across the board, with the USD/JPY pair being the biggest outlier. The US Dollar (USD) outperforms the Japanese Yen (JPY) by over 1% on Tuesday.
- On the US political front, current Vice President Kamala Harris was officially nominated as the Democratic candidate for the upcoming Us presidential elections in November. Meanwhile it has become clear as well that Minnesota Governor Tim Walz will be her running mate, according to CNN.
- June US Goods and Trade deficit comes in at $73.1 billion, wider than then $72.5 billion expectation.
- On the old continent, German Factory Orders data for June were an upbeat surprise, increasing by 3.9% month-over-month after the -1.6% registered in May. Additionally, there were some lighter but still positive numbers for the German Construction Purchase Managers Index (PMI) for July, which ticked up from 39.7 to 40.0. Despite the uptick, the PMI number remains stuck in contraction.
- France’s private sector payrolls were unchanged in the second quarter. The preliminary number came in at 0.0% against 0.3% for the final reading of the first quarter.
- European Retail Sales for June declined from 0.1% in May to -0.3% in June. The yearly number went from a revised 0.5% last year to -0.3%.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.34% | 0.70% | 0.13% | -0.00% | 0.18% | 0.31% | -0.12% | |
| EUR | -0.34% | 0.39% | -0.17% | -0.35% | -0.18% | -0.11% | -0.45% | |
| GBP | -0.70% | -0.39% | -0.55% | -0.71% | -0.56% | -0.48% | -0.88% | |
| JPY | -0.13% | 0.17% | 0.55% | -0.17% | 0.03% | 0.08% | -0.15% | |
| CAD | 0.00% | 0.35% | 0.71% | 0.17% | 0.17% | 0.25% | -0.17% | |
| AUD | -0.18% | 0.18% | 0.56% | -0.03% | -0.17% | 0.09% | -0.32% | |
| NZD | -0.31% | 0.11% | 0.48% | -0.08% | -0.25% | -0.09% | -0.36% | |
| CHF | 0.12% | 0.45% | 0.88% | 0.15% | 0.17% | 0.32% | 0.36% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Technical Analysis: EUR/USD bounces, with markets looking for direction
EUR/USD is retreating after sellers came in hard on Monday once the pair briefly popped above 1.10. With that firm rejection at the psychological level and with the price action now falling back below that red descending trend line, it looks like EUR/USD will need to find support in order to regain strength for the next leg higher. As the Relative Strength Index (RSI) indicator is nearly overbought, it makes sense to let it ease back first before a possible next rally can spark.
On the upside, three stages can be recognised. First up is the 1.1017 area, where sellers came in hard on Monday. Should EUR/USD be able to rally above there, another leg higher to December’s peak at 1.1139 comes into focus. A surprise move towards 1.1275 could unfold if the Fed is forced to make a surprise emergency rate cut in case markets get out of control again for several days in a row.
Looking for support, the round level of 1.09 is an ideal candidate. In case the US Dollar gains momentum, the belt of moving averages in the 1.08 region is the next area to watch. Certainly, the 200-day Simple Moving Average (SMA) at 1.0830 looks very appealing, givenits importance in previous periods.
EUR/USD: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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