Following bullish economic indicators last week, Eurozone industrial production was in the spotlight today. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias. SoftBank Group shares rose Friday morning in Tokyo after chip designer Arm surged in its Nasdaq debut overnight, raising hopes for a recovery in the IPO market.
- The pair represents American (from United States of America) and Japanese economies.
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Volatility might slowly start picking up ahead of the release.The consumer-price index for August is due out later today. Volatility might slowly start picking up ahead of the release. For the best MarketWatch.com experience, please update to a modern browser. The US dollar wants to soak in all that uncertainty and come out stronger.The Fed thinks inflation may stay higher for longer. The US dollar wants to soak in all that uncertainty and come out stronger.
FED NEWS & ANALYSIS
That said, the prospects for further policy tightening by the Federal Reserve (Fed) should act as a tailwind for the Greenback and keep a lid on any meaningful recovery for the EUR/USD pair. The US Dollar strengthened during the American session after the release of US economic data that showed a larger-than-expected increase in the Producer Price Index in August, along with an upbeat retail sales report. US yields edged higher, supporting the Dollar, partially offset by risk appetite. Heading into 2023, there is uncertainty over central banks succeeding in guiding economies into a soft landing. That is, controlling inflation without triggering recessions. As said, price pressures are still too high, with inflation running over three times faster than tolerable.
Let’s find out why.A painful rate increase amid an economic slowdown?
A rising U.S. dollar is ringing alarm bells overseas. Should stock-market investors worry?
Adding to this, the US Initial Jobless Claims rose less than expected, to 220K last week as compared to the 217K previous. Furthermore, the US Bureau of Labor Statistics published the US Producer Price Index (PPI), which accelerated to 0.7% in August from the 0.4% previous and the annual rate climbed to 1.6%, faster than the 1.2% projected and 0.8% in July. This, along with sticky consumer inflation, as revealed in the US CPI report on Wednesday, should allow the Fed to keep rates higher for longer. The most traded currency pairs in the world are called “the Majors” and the EURUSD leads this group as the most traded pair in the world. This pair represents the world two largest economies and has faced most volatility since the inception of the euro in 1999. The EUR/USD broke key levels due to a combination of robust US data and the dovish ECB rate hike.
The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Uncertainty over ECB monetary policy had left the EUR/USD on the back foot this morning. While today’s numbers show how the Eurozone manufacturing sector is performing, the stats are unlikely to influence the ECB’s policy goals to bring inflation to target. Hong Kong’s morning trading session will be delayed due to the issuance of a Black Rainstorm Warning alert issued by the government. The US dollar refuses to give up and, what’s more, it just busted a key long-term support for the first time since November.The US dollar refuses to give up and, what’s more, it just busted a key long-term support for the first time since November.
However, the interest rate hike did not boost the Euro; instead, it fell sharply on expectations that it would be the last one. ECB President Lagarde will speak again on Friday in Spain at the Eurogroup meeting. After the post-meeting press conference, there appears to be nothing left to say. Data are provided ‘as is’ for informational purposes only and are not intended for trading purposes.
Data may be intentionally delayed pursuant to supplier requirements. Gold price extends gains on the second day, trading higher near $1,920 per troy ounce during the early trading hours of the European session on Friday. The pair is receiving upward support, likely attributed to a slight correction in the USD. The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice. The USD/JPY (or US Dollar Japanese Yen) currency pair is one of the ‘Majors’, the most important pairs in the world.
U.S. consumer credit growth slows in July
Japanese Yen has a low interest rate, normally used in carry trades, that’s why is one of the most trades currencies worldwide. In the USD/JPY the US Dollar is the base currency and the Japanese Yen is the counter currency. The pair represents American (from United States of America) and Japanese economies. Thursday’s US producer prices came in hot, while retail sales were solid and well above forecast.
What this means is that the Fed is still in position to be tightening, which on net, should translate to more US Dollar demand. The Fed, investors, traders and their dogs, cats, and moms will be watching the latest jobs figures today.The Fed, investors, traders and their dogs, cats, and moms will be watching the latest jobs figures today. FXStreet and the author do not provide personalized recommendations.
Furthermore, the downgrading of CPI and GDP growth forecasts for the coming years – 2024 and 2025 – reaffirmed expectations that further hikes may be off the table for now. The markets were quick to react and are now pricing in the possibility of a rate cut during the first half of 2024, which weighed heavily on the shared currency. All information provided by Anton Kolhanov is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to buy or sell any trading instrument. Anton Kolhanov is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained. You should do your own thorough research before making any investment decisions and seek advice from an independent financial advisor.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet. The EU Growth Forecasts added more uncertainty on what to expect on Friday. While upwardly revising growth forecasts for 2022 from 2.7% to 3.2%, the EU Commission downwardly revised growth forecasts for 2023 from 1.4% to 0.3%.
The aforementioned fundamental backdrop suggests that the path of least resistance for the EUR/USD pair is to the downside and any subsequent move up might still be seen as a selling opportunity. Market participants now look to ECB President Christine Lagarde’s scheduled speech for a fresh impetus. Nevertheless, spot prices remain on track to register losses for the ninth straight week and seem vulnerable to slide further. The markets turned optimistic after the People’s Bank of China (PBoC) lowered the Reserve Ratio Requirements for local lenders by 25 bps – its second such move this year. This is expected to release more liquidity and potentially shore up growth in the world’s second-largest economy, easing recession fears. Adding to this, China reported that Industrial Production and Retail Sales grew more than expected in August, further boosting investors’ confidence.
Monthly economic outlook
The EUR/USD pair attracts some buying on the last day of a new week and reverses a part of the previous day’s downfall to a nearly six-month low touched in the aftermath of the dovish European Central Bank (ECB) rate decision. The ECB opted to hike rates for the 10th straight time, by 25 bps, taking its main rate to an all-time high level of 4% to counter stubbornly high inflation. In the accompanying monetary policy statement, the central bank sent a clear message that the 14-month-long policy tightening cycle could have reached its peak already.
Crude prices correct ahead of the release of the US economic data. WTI reached a YTD high of $90.56 due to a forecasted tighter supply of black gold. The pullback in the US Dollar https://1investing.in/ (USD) could provide support in strengthening the Oil prices. Some analysts expected a pause, and as Lagarde mentioned, some members of the Governing Council also preferred that.
ECB members Fabio Panetta, Andrea Enria, and Luis de Guindos speak today. The markets are still second-guessing what the ECB has red collar jobs planned for December. Last week, ECB President Lagarde reiterated the need to hike rates to bring high inflation under control.
The pair remains vulnerable, and a deterioration in market sentiment could open the doors to further losses. EUR/USD is trading above 1.0650, recovering from the dovish ECB hike inflicted wounds in the European morning on Friday. Optimism surrounding China’s stimulus measures and strong economic data is weighing on the safe-haven US Dollar, supporting the pair. An eighth straight week of losses is staring at the European currency as traders flee to the dollar for continued gains.An eighth straight week of losses is staring at the European currency as traders flee to the dollar for continued gains.