Euro sets forth recovery after vote of no confidence is set for Wednesday in France
- The Euro holds on to small gains against the US Dollar after the nearly 1% correction booked on Monday.
- Traders are assessing where to take the Euro after dovish calls from ECB's Cipollone and French political uncertainties.
- Traders brace for the US Nonfarm Payrolls release due on Friday with JOLTS being printed this Tuesday.
The Euro keeps its head above 1.05 over halfway through the European session this Tuesday, after having lost 0.78% on Monday due to concerns over the stability of the French government. French Prime Minister Michel Barnier used a special decree to pass his social budget reform by circumventing the French parliament, a move that set off bad blood with the opposition parties, which were very quick to support a vote of no confidence that could be held as early as Wednesday.
Meanwhile in the US, Federal Reserve Governor Christopher Waller said that he is keen for a December interest-rate cut. This has pushed up the odds for that rate cut to take place, narrowing the rate differential between European and US bond yields. Some further easing from the US Dollar should materialize on the back of this, giving further impulse to the EUR/USD pair ahead of the US JOLTS Job Openings report to be published in Tuesday’s American session.
Daily digest market movers: Falling government could turn into Euro positive element
- The main economic event this Tuesday will be the US JOLTS Jobs Openings report for October. Expectations are for 7.48 million job openings against the previous 7.443 million, ahead of the retail-intensive Christmas Holiday period.
- Spanish Unemployment in November fell by around 16,000 people, coming from the 26,800 uptick in joblessness seen the previous month.
- Bloomberg confirms that a vote of no confidence will take place Wednesday in France.
- European equities are positive though off their intraday high, where the German Dax hitted 20,000 points for the first time ever.
- European Central Bank (ECB) Executive Board member Piero Cipollone said on Tuesday that Europe is growing much less than it could, with upcoming US tariffs possibly lowering the growth outlook even more. This opens the door for larger rate cuts from the ECB, Bloomberg reports.
Technical Analysis: The knee jerk reaction could get ugly
EUR/USD has a long road to recover after its stellar correction in November. With policies from US President-elect Donald Trump being priced in, a lot could be priced out once it turns out that bold statements were a bargaining chip to get some deal or consensus done.
Major banks are already calling for parity, but it would not come as a surprise that parity does not materialize. There is the possibility that the EUR/USD pair reverts back to 1.0600 and 1.0800 in the coming weeks as traders unwind positions ahead of the Christmas season and the end of the year.
On the upside, three firm lines of resistance can be seen. The first is the previous 2024 low at 1.0601 registered on April 16. If that level breaks, the triple bottom from June at 1.0667 will be the next cap upwards. Further up, the 1.0800 round level, which roughly coincides with the green ascending trend line from the low of October 3, 2023, could deliver a harsh rejection.
Looking for support, the 2023 low at 1.0448 is the next technical candidate. The current two-year low at 1.0332 is the second level to look out for. Further down, 1.0294 and 1.0203 are the next levels to consider.
EUR/USD: Daily Chart
German economy FAQs
The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany's economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany's economy strengthens, it can bolster the Euro's value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro's strength and perception in global markets.
Germany is the largest economy in the Eurozone and therefore an influential actor in the region. During the Eurozone sovereign debt crisis in 2009-12, Germany was pivotal in setting up various stability funds to bail out debtor countries. It took a leadership role in the implementation of the 'Fiscal Compact' following the crisis – a set of more stringent rules to manage member states’ finances and punish ‘debt sinners’. Germany spearheaded a culture of ‘Financial Stability’ and the German economic model has been widely used as a blueprint for economic growth by fellow Eurozone members.
Bunds are bonds issued by the German government. Like all bonds they pay holders a regular interest payment, or coupon, followed by the full value of the loan, or principal, at maturity. Because Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are viewed as a solid, risk-free investment as they are backed by the full faith and credit of the German nation. For this reason they are treated as a safe-haven by investors – gaining in value in times of crisis, whilst falling during periods of prosperity.
German Bund Yields measure the annual return an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay holders interest at regular intervals, called the ‘coupon’, followed by the full value of the bond at maturity. Whilst the coupon is fixed, the Yield varies as it takes into account changes in the bond's price, and it is therefore considered a more accurate reflection of return. A decline in the bund's price raises the coupon as a percentage of the loan, resulting in a higher Yield and vice versa for a rise. This explains why Bund Yields move inversely to prices.
The Bundesbank is the central bank of Germany. It plays a key role in implementing monetary policy within Germany, and central banks in the region more broadly. Its goal is price stability, or keeping inflation low and predictable. It is responsible for ensuring the smooth operation of payment systems in Germany and participates in the oversight of financial institutions. The Bundesbank has a reputation for being conservative, prioritizing the fight against inflation over economic growth. It has been influential in the setup and policy of the European Central Bank (ECB).