- EUR/USD rebounded after testing 1.0500, its lowest in more than a year, on Thursday.
- On Friday, the euro rebounded against the US dollar after five consecutive days of declines due to profit-taking.
- Markets are nervous about the Fed questioning its December interest rate cut, while the ECB is expected to continue easing, pointing to further downside for EUR/USD.
EUR/USD briefly tested the 1.0500 level the previous day before recovering on Friday, erasing losses incurred on Thursday. The pair has fallen nearly 1.5% so far this week as markets price in more of President Trump's trade effects. Profit-taking is currently occurring as the euro has fallen against the US dollar for the fifth day in a row. All pieces of the puzzle are in place and EUR/USD could start trading sideways in a range until President-elect Donald Trump takes office in January.
Friday's recovery in EUR/USD appears to have been triggered by some profit-taking after this week's sharp decline. French economic data released today showed that inflation, as measured by the Harmonized Consumer Price Index (HCPI), was slightly higher than preliminary figures for October. However, this may not change the European Central Bank's (ECB) dovish stance, which is expected to lower interest rates at its policy meeting in December.
On Thursday, Federal Reserve Chairman Jerome Powell joined members of the Fed in considering another rate cut in December, but the Fed did not agree to do so. Chairman Powell noted that the U.S. economy and job market remain very strong. Meanwhile, several analysts and economists believe that if President-elect Donald Trump rolls out a full range of fiscal stimulus targeting both U.S. businesses and households, along with additional tariffs on China and Europe, U.S. indexes will They warn that functional inflation will occur.
Daily Digest Market Movement: EUR/USD rises higher than US retail sales
- Japanese stocks closed mostly flat to positive on Friday, while Chinese stocks faced weekly declines.
- France's final October inflation figures were slightly better than expected. HCPI increased 1.6% year-over-year (YoY) compared to the previously reported and expected 1.5%. Monthly HCPI was 0.3%, as expected.
- There was some good news on the economic front from China, with retail sales increasing 4.8% year-on-year in October, beating expectations of 3.8%.
- All eyes will be on October US retail sales data to be released on Friday, with the headline number expected to be 0.3% compared to 0.4% in September. As always, the market will focus more on the revised price than the actual number.
Technical analysis: Fundamentals limit upside scenarios
EUR/USD on Friday rebounded slightly after being in the red for the fifth straight trading day, with profit taking during European trading. Purely on fundamentals, we don't expect a significant upside for EUR/USD as Fed Chairman Jerome Powell has dampened expectations for a December interest rate cut, while recent French inflation data has reinforced the ECB's dovish stance. It may never change. If the Fed does not cut rates and the ECB does so at its next board meeting in December, the difference in interest rates between the two will widen further, which will add fuel to the fire and cause EUR/USD to fall further by the end of the year. There is a possibility that
On the top surface, you can see three solid lines in the sand. First is the previous low in 2024, 1.0601 recorded on April 16th. If this level is broken, the next upper limit will be the triple bottom from June at 1.0667. Further up, the 1.0800 round level, which roughly coincides with the green uptrend line from the October 3, 2023 low, could signal a severe rejection before EUR/USD moves further down.
If we are looking for support, the 2023 low at 1.0448 is the next technical candidate. This means that once tested, it could hit a new two-year low. Further down, considering 1.0294 as the next level could open up more territory.
EUR/USD: daily chart
Central Bank Frequently Asked Questions
Central banks have the important mission of ensuring price stability in a country or region. Whenever the prices of certain goods and services change, an economy faces inflation or deflation. A continuous increase in the price of the same product indicates inflation, and a continuous decrease in the price of the same product indicates deflation. The central bank's job is to keep demand constant by adjusting policy interest rates. The mandate for the largest central banks, such as the US Federal Reserve (Fed), European Central Bank (ECB), and Bank of England (BOE), is to keep inflation close to 2%.
Central banks have one important tool at their disposal to raise or lower inflation. It is to adjust the base policy rate, commonly known as the interest rate. Upon prior communication, the central bank will issue a statement regarding the policy rate and provide additional reasons as to why it may maintain or change (lower or increase) the policy rate. Local banks will adjust their savings and lending rates accordingly, making it harder or easier for people to earn money on their savings and for businesses to take out loans and invest in their businesses. I will do it. Monetary tightening is when a central bank significantly raises interest rates. Lowering the base interest rate is called monetary easing.
Central banks are often politically independent. Members of the central bank policy committee go through a series of panels and hearings before being appointed to the policy committee seat. Each member of the board often has certain beliefs about how the central bank should control inflation and subsequent monetary policy. Doves are members who are happy with inflation slightly above 2% but want a very accommodative monetary policy with low interest rates and low lending to significantly boost the economy. Members who would rather raise interest rates to reward savings and keep a constant eye on inflation are called “hawks'' and will not rest until inflation is at or slightly below 2%.
There is usually a chairperson or president who leads each meeting, and consensus must be built between hawks and doves, with votes split to avoid a 50-50 tie on the pros and cons of the current topic. have the final say in the matter. Policies need to be adjusted. The chair often gives a speech that can be viewed live, conveying the current financial stance and outlook. Central banks seek to promote monetary policy without causing wild fluctuations in interest rates, stocks, and currencies. All members of the central bank are expected to signal their stance on markets ahead of the policy meeting event. Starting several days before the policy meeting, members are prohibited from speaking publicly until new policies are communicated. This is called the blackout period.
