EUR/USD clings to gains on US Dollar weakness amid easing geopolitical tensions
- The Euro remains steady near over three-year highs against the US Dollar, supported by a moderate risk appetite.
- Weak US data and higher hopes of Fed interest rate cuts are weighing on the US Dollar.
- EUR/USD maintains its positive tone with resistance at 1.1630-1.1640 and 1.1700.
The EUR/USD is trading practically flat on Wednesday, just below a multi-year high near 1.1640, last seen in November 2021, consolidating gains after a nearly 1.40% rally in the previous two days. A moderate appetite for risk continues to drive markets, despite the fragility of the ceasefire between Israel and Iran, and is keeping the safe-haven US Dollar (USD) on its back foot.
Oil prices have ticked up from Tuesday's lows butt remain well below the highs seen last week. Iran's Oil and Natural Gas facilities seem to have been little affected by the bombings, and Oil traffic through the strategic Strait of Hormuz does not seem under threat, at least for now. The relatively low Crude prices are an additional support to the Euro (EUR) as they ease inflationary pressures on the Eurozone economy.
In the US, on Tuesday, the Federal Reserve (Fed) Chairman Jerome Powell reiterated that the central bank is in no rush to cut interest rates at the Semiannual Monetary Policy Report to Congress. Pressure from US President Donald Trump and the growing dissension among Fed officials does not seem to have scratched Powell's hawkish stance.
The market, however, keeps betting on a rate cut in September, especially after the downbeat Consumer Confidence reading released on Tuesday. Increasing concerns about employment are limiting US consumers' purchasing decisions and increasing pressure on the central bank to adopt a less restrictive monetary policy.
Powell will testify again on Wednesday, but he is unlikely to change his views. The economic calendar is thin on Wednesday, with only US New Home sales data for May. News about Middle East developments will continue driving markets.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | -0.06% | 0.25% | 0.11% | -0.13% | -0.35% | -0.05% | |
| EUR | 0.00% | -0.03% | 0.25% | 0.09% | -0.15% | -0.35% | -0.05% | |
| GBP | 0.06% | 0.03% | 0.26% | 0.14% | -0.10% | -0.32% | 0.01% | |
| JPY | -0.25% | -0.25% | -0.26% | -0.19% | -0.36% | -0.56% | -0.27% | |
| CAD | -0.11% | -0.09% | -0.14% | 0.19% | -0.17% | -0.33% | -0.13% | |
| AUD | 0.13% | 0.15% | 0.10% | 0.36% | 0.17% | -0.27% | 0.11% | |
| NZD | 0.35% | 0.35% | 0.32% | 0.56% | 0.33% | 0.27% | 0.33% | |
| CHF | 0.05% | 0.05% | -0.01% | 0.27% | 0.13% | -0.11% | -0.33% |
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 Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: Risk appetite and hopes of Fed cuts keep the USD on the defensive
- The Euro (EUR) is being buoyed by the US Dollar's weakness. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, remains depressed near three-year lows, at 97.60, weighed by the positive risk sentiment triggered by the frail peace agreement in the Middle East and higher hopes that the Fed will be forced to cut interest rates, probably in September.
- The ceasefire between Israel and Iran announced by US President Trump on Monday seems very fragile but is holding, at least for now. This is feeding a moderate risk appetite on Wednesday, keeping the Euro buoyed, and weighing on demand for safe-haven assets like the US Dollar.
- Reports from US intelligence, however, are casting doubt on the durability of the truce. According to a preliminary assessment, the US bombing on Iran's nuclear sites might have set back their program by only one or two months, rather than "obliterated" it as Trump affirmed following the strikes. It is hard to assure that this new context guarantees a long-lasting peace.
- On the macroeconomic front, Eurozone data revealed on Tuesday that the German IFO Business Climate Index increased to 88.4 in June from 87.5 in May, slightly above the 88.3 expected. Business Expectations index also improved, to 90.7 from the previous 88.9, beating expectations of a 90.0 reading. The impact on the Euro, however, was marginal.
- In the US, the Conference Board's Consumer Confidence deteriorated against expectations in June, with the index falling to 93.0 from 98.4 (upwardly revised from 98.0) in May, instead of the increase to the 100.00 level forecasted by market analysts. The poll revealed a deterioration in both the current situation assessment and economic perspectives, due to heightened concerns about job availability, according to the report.
- These figures did not affect the Fed Chairman Powell's cautious stance on monetary policy, who reiterated that the central bank is "well positioned to wait" as, he said, price rises due to higher tariffs are expected to increase inflationary pressures and weigh on economic activity.
- Investors, however, are keeping their bets on further Fed rate cuts over the coming months. Data from the CME Group's Fed Watch shows an 18% chance of a rate cut in July and 85% in September, up from 14% and 65% respectively, in the previous week.
EUR/USD remains positive with 1.1630 capping bulls for now
EUR/USD resumed its broader bullish trend after breaching the top of the last few weeks' corrective channel, boosted by investors' optimism following Trump's announcement of a ceasefire in the Middle East conflict.
Immediate resistance is at the June 12 high, at 1.1630, but the break of the trendline resistance at 1.1540 highlights a bullish flag formation with a measured target at the 1.1700 area. This coincides with the 127.2% Fibonacci extension of the June 10-12 rally.
On the downside, a bearish reaction from current levels might seek support at the broken trendline, now around the 1.1535 previous resistance area. A pullback to retest that level is not discarded. A confirmation below that level would cancel the bullish view and bring the Thursday and Monday lows at 1.1445 back into focus.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.