During last week's trading, the euro's performance was clearly superior at the beginning of the new month, as it responded to another higher jump in German bond yields, as investors reacted to the surprisingly strong inflation readings. Accordingly, the price of the EUR/USD currency pair moved upward towards the resistance level 1.0692. The currency pair did not succeed in continuing upwards, as the US dollar is still the strongest with expectations of raising US interest in the coming period, which explains the decline of the Euro / Dollar again to reach the support level 1.0576. It closed the week's trading around the level of 1.0635, waiting for an important and fateful trading week.
German bonds fell and yields rose as investors priced in higher European Central Bank (ECB) interest rates after higher-than-expected German CPI inflation data. German CPI rose 0.8% m/m in February according to Destatis, beating expectations for a 0.6% reading. In the year through February, inflation rose 8.7%, unchanged in January but beating estimates at 5.8%.
German data followed unexpectedly similarly strong results in Spain and France the previous day and points to strong results across the Eurozone.
The data prompted investors to raise their expectations about the number and size of interest rate hikes coming from the European Central Bank, which in turn pushed up regional government bond yields. “Markets are peaking higher in ECB borrowing costs at around 4% from recent estimates closer to 3.5% also putting a tailwind on the euro,” says Joe Manimbo, senior forex analyst at Convera.
After the economic data, the yield on the two-year German bund rose to its highest level since 2008 at 3.18%, outpacing the advance of its US and UK peers, and pushing the euro higher against the dollar and the pound as a result. Accordingly, the analyst added, “The German two years have been going in a parabolic trend for several months now, but it has recently risen at an explosive rate, finally breaching 3.2% overnight. This pulls the EUR/USD from its lows and prevents the pair from breaching the 1.0500 psychological support level.”
Rising bond yields motivate investors in the Eurozone to return capital to the Eurozone economy as they can now expect higher yields on bonds. This reflects the outflow that was present during the years when the European Central Bank cut interest rates in the Eurozone heavily as they struggled to keep growth high.
In light of the trend in yields, ECB Governing Council Member and ECB President Joachim Nagel said midweek that further "significant" tightening might be needed after March, and there were risks of an early slowdown in yields. rate hike cycle.
The euro's strength will also reflect the unexpected news that China's factory sector experienced a sharp recovery in February, which increases the possibility of an increase in high-value euro-zone exports to China. China's PMI reading came in at 52.6 in February, up from 50.1 in January, the strongest growth in the series since April 2012, according to China's National Bureau of Statistics. The services PMI came in at 56.3, up from 54.4 and ahead of expectations of 55.0. The Caixin PMI reading came in at 51.6, up from 49.2 and ahead of expectations of 50.2. Overall, the Chinese economy is recovering faster than economists expected, boosting growth-supporting currencies, and penalizing safe-haven names such as the dollar.
Euro predictions against the dollar today:
- According to the performance on the daily chart, the bulls still need to control the performance of the EUR/USD currency pair.
- A buying rule is waiting for a trigger to start the bullish reversal.
- The pair's view may change to bullish if it moves towards the resistance levels 1.0725 and 1.0830, respectively.
- On the other hand, the move towards the support level 1.0550 will have more bear control over the trend.
The testimony of US Central Bank Governor Jerome Powell and the announcement of US job numbers are the most important drivers of the EUR/USD currency pair this week. He may remain in a neutral position until he reacts to these statements and events.
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