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Euro moves higher as risk aversion eases

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  • The euro rises as risk aversion eases, although the broader bearish trend remains intact.
  • Strong US retail sales helped dampen hopes of an imminent Fed rate cut.
  • ECB President Lagarde on Wednesday dismissed any aggressive easing that would have provided some support to the euro.

The Euro (EUR) pared some losses in Thursday’s European session. The American dollar The index retreated from monthly highs as the impact of strong US retail sales data faded, although the broader EUR/USD trend remains negative.

US retail sales beat expectations on Wednesday, adding to evidence of a solid US economy and supporting recent comments from Federal Reserve officials who said it was too early to cut interest rates. rates.

A little later, the President of the European Central Bank (ECB) Christine Lagarde he spoke at the Davos summit to throw off any aggressive rate cuts and push the bank’s dovish pivot to next summer. This provided some support to the euro.

Later today, a speech by the president of the Atlanta Fed, Raphael Bostic, US weekly jobless claims and housing data are likely to provide some guidance for the US dollar. The ECB’s Lagarde is then expected to speak again in Davos.

Daily market roundup: Euro sees slight recovery as USD takes a breather

  • The euro is moving higher, supported by softening risk aversion, although the broader trend remains bearish.
  • U.S. retail sales rose 0.6% in December, above November’s 0.3% increase and beating expectations for a 0.4% increase.
  • The numbers confirm solid U.S. economic momentum and suggest the Fed still has some work to do to bring inflation down to its target.
  • The Fed’s beige book underscored solid U.S. economic momentum, reflecting strong levels of Christmas spending, increased travel and higher credit card lending.
  • The market continues to lower hopes for Fed cuts in March. The CME Group Fed Watch Tool shows a 63% chance the US central bank will begin easing in March, up from levels above 70% earlier this week.
  • Geopolitical tensions continue to escalate. News that Pakistan attacked Iran in retaliation for Tehran’s offensive earlier this week is likely to curb investors’ risk appetite and limit the euro’s recovery.

Technical analysis: EUR/USD is likely to encounter resistance at 1.0930

The EUR/USD the pair is undergoing a modest recovery after finding support at the 1.0845 lows on Wednesday. Somewhat xxxx behind the US dollar is contributing to the recovery of the common currency, although the broader trend remains negative.

Euro bulls are likely to encounter significant resistance in the 1.0930 area, where previous trend resistance and the confluence of the 4-hour 200 and 50 SMAs will challenge the bulls.

The pair would need to confirm above this level to ease the downside and target back to the previous lower high at 1.1000.

Conversely, a reversal at current levels would give the bears new hope of breaking through Wednesday’s low at 1.8040, confirming the bearish Head and Shoulders (H&S) pattern below the neckline.

Other targets in this case would be 1.0800 and 1.0725. The H&S measured target is the 78.6% Fibonacci retracement of the aforementioned rally to 1.0600.

Euro frequently asked questions

The euro is the currency of the 20 countries of the European Union that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022 it charged for 31% of all foreign exchange transactions with an average daily turnover of over 2.2 trillion dollars per day.
EUR/USD is the most traded currency pair in the world, bookkeeping for an estimated 30% discount on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is raising or lowering interest rates. Relatively high interest rates – or expectations of higher rates – usually benefit the euro and vice versa.
The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. The heads of the national banks of the eurozone and six permanent members, including ECB President Christine Lagarde, decide.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially if it is above the ECB’s 2% target, it obligates the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its peers will usually benefit the euro, making the region more attractive as a place for global investors to park their money.

The published data assesses the health of the economy and may have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the euro. Not only will this attract more foreign investment, but it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the economic data is weak, the euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant as they account for 75% of the euro area economy.

Another important data release for the euro is the trade balance. This indicator measures the difference between what a country earns on exports and what it spends on imports for a given period.
If a country produces a highly sought-after export, then its currency will gain in value purely due to the extraordinary demand created by foreign buyers who want to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa a negative balance.

Frequently asked questions about 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 the base interest rates that central banks set in response to changes in the economy. Central banks are usually mandated to ensure price stability, which in most cases means aiming for a core inflation rate of around 2%.
If inflation falls below target, the central bank can cut key interest rates to stimulate lending and stimulate the economy. If inflation rises substantially above 2%, this usually results in the central bank raising key lending rates in an attempt to reduce inflation.

Higher interest rates generally help strengthen a country’s currency by making 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 putting cash in the bank.
If interest rates are high, this usually pushes up the price of the US dollar (USD), and since gold is valued in dollars, this has the effect of lowering the price of gold.

The Fed funds rate is the overnight rate at which US banks borrow from each other. It is the often quoted key rate set by the Federal Reserve at FOMC meetings. It is set as a range, for example 4.75%-5.00%, although the upper limit (5.00% in this case) is the given figure.
Market expectations for the future Fed funds rate are tracked by CME’s FedWatch tool, which determines how many financial markets are behaving in anticipation of future Federal Reserve monetary policy decisions.

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