Euro rises against dollar, technical chart signals new rally
On the US and European stock markets, there is a lull, with US index futures trading near Monday's opening levels, and European indices slightly weaker. The dollar has gone on the defensive, indicating a search for yield in the market. Moderate selling pressure has resumed in commodity markets, with oil prices falling. The yields on US Treasuries and German bonds, which stabilized last Friday, are fluctuating in a narrow range on Monday.
The euro has gained quite well today compared to other major currencies, almost 0.3%, and it seems that the 1.10 level will play a role as a foundation for a new rally. This is indicated by the technical picture of the dollar index. On the chart below, it can be seen that, after forming a double bottom at the level of 100.75, the price bounced back very uncertainly, pulling away a short distance from the level. This suggests that buyers did not particularly resist, which in turn may allow sellers to build up pressure more confidently. Buyers may therefore appear near the level of 100, where there will also be a short-term support level along the trend line:
The fundamental component of dollar expectations also points to the risk of a weaker dollar in the medium term. The Fed is leaning towards raising rates one last time and then announcing a "pause" (smoothly transitioning to a signal of the end of tightening and a discussion of when to start lowering interest rates). The inflationary challenge for the ECB is more serious, so it may not be limited to just one rate hike this year. If you look at the difference in short-term market rates between the US and Germany (which largely explains the EURUSD exchange rate), the indicator clearly leans towards lower levels and a potential turning point is seen at a spread of 1%:
If such a scenario is realized, the euro will obviously be more expensive relative to the dollar.
The news calendar today is quite boring. The business climate index in Germany from the IFO agency rose for the seventh month in a row, from 93.2 to 93.6 points. The change, while modest, was positive, and the absence of negative news was enough to boost euro buyers. Expectations of German firms improved once again, but remain below the historical average. The assessment of current conditions decreased.
Overall, the report indicated that the decreasing gas prices and the resuming expansion of China's economy, which is a trading partner with Germany, have positively affected the country's business climate. However, there is no talk of a strong expansion of the economy.
From a fundamental events perspective, this week will be interesting on Thursday when data on US GDP for the first quarter of this year will be released, and on Friday when the second most important consumer inflation indicator in the US (Core PCE) for March, Eurozone GDP for the first quarter, as well as the inflation report in Germany will be released.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
On the US and European stock markets, there is a lull, with US index futures trading near Monday's opening levels, and European indices slightly weaker. The dollar has gone on the defensive, indicating a search for yield in the market. Moderate selling pressure has resumed in commodity markets, with oil prices falling. The yields on US Treasuries and German bonds, which stabilized last Friday, are fluctuating in a narrow range on Monday.
The euro has gained quite well today compared to other major currencies, almost 0.3%, and it seems that the 1.10 level will play a role as a foundation for a new rally. This is indicated by the technical picture of the dollar index. On the chart below, it can be seen that, after forming a double bottom at the level of 100.75, the price bounced back very uncertainly, pulling away a short distance from the level. This suggests that buyers did not particularly resist, which in turn may allow sellers to build up pressure more confidently. Buyers may therefore appear near the level of 100, where there will also be a short-term support level along the trend line:
The fundamental component of dollar expectations also points to the risk of a weaker dollar in the medium term. The Fed is leaning towards raising rates one last time and then announcing a "pause" (smoothly transitioning to a signal of the end of tightening and a discussion of when to start lowering interest rates). The inflationary challenge for the ECB is more serious, so it may not be limited to just one rate hike this year. If you look at the difference in short-term market rates between the US and Germany (which largely explains the EURUSD exchange rate), the indicator clearly leans towards lower levels and a potential turning point is seen at a spread of 1%:
If such a scenario is realized, the euro will obviously be more expensive relative to the dollar.
The news calendar today is quite boring. The business climate index in Germany from the IFO agency rose for the seventh month in a row, from 93.2 to 93.6 points. The change, while modest, was positive, and the absence of negative news was enough to boost euro buyers. Expectations of German firms improved once again, but remain below the historical average. The assessment of current conditions decreased.
Overall, the report indicated that the decreasing gas prices and the resuming expansion of China's economy, which is a trading partner with Germany, have positively affected the country's business climate. However, there is no talk of a strong expansion of the economy.
From a fundamental events perspective, this week will be interesting on Thursday when data on US GDP for the first quarter of this year will be released, and on Friday when the second most important consumer inflation indicator in the US (Core PCE) for March, Eurozone GDP for the first quarter, as well as the inflation report in Germany will be released.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.