The improvement in the results of the American economic data confirms the strength of the economy in the light of the continued tightening of the policy of the American central bank. This further supports the strong US dollar against the rest of the other major currencies. In the case of the euro currency pair against the US dollar EUR/USD, it has subsided to the lowest support level of 1.0488 during 2023 trades before settling around the 1.0500 level at the beginning of Thursday's session.
Climate change, extreme weather events and the energy transition will make it difficult for the European Central Bank to properly gauge the economic health of the eurozone and set monetary policy, according to some of the latest research by the institution. In this regard, Miles Barker, one of the senior economists at the European Central Bank, wrote in a research paper published on Wednesday, that the three challenges are likely to affect the potential output in the coming decades. This variable is a key input in the quarterly forecasts that guide interest rate decisions.
He added by saying: "Unmitigated climate change is far worse for potential long-term production than the effect of transitioning to net zero carbon." "However, the shift itself may also reduce potential output, especially in the near term."
Economists are struggling to understand how climate change and its coping strategies affect prices and companies' ability to grow. And International Monetary Fund estimates indicate that the costs, at least in this decade, involve faster inflation and weaker growth. And the "large local impact" of climate changes on specific regions and sectors, and the uncertainty regarding the reactions of companies and individuals, increases the difficulty of judging the ramifications - especially with the policy setting for the Eurozone, which consists of 20 countries as a whole.
At the same time, a separate survey conducted by the European Central Bank showed that concerns about the effects of climate change over the next five years are "widespread" across Eurozone companies. About 60% indicated that the transition risks related to the stricter green standards are "extremely important". Half felt they had made sufficient investments to reduce their carbon footprint, and nearly a quarter planned to do so within the next five years.
Meanwhile, more than half said that extremely high interest rates or financing costs and insufficient public support constitute "very important obstacles" to climate-related investment. For its part, the European Central Bank raised interest rates for the tenth time in a row this month, bringing the total tightening since July of last year to 450 basis points.
Expectations of the euro against the dollar today:
- According to the performance on today's chart below, the general trend of the EUR/USD currency pair is still downward.
- The new psychological support break of 1.0500 confirms the strength and control of the bears over the trend.
- In addition to the extent to which the technical indicators have moved towards strong selling saturation levels, I still prefer to think about returning to buy the currency pair from those levels and below them instead of risking more selling deals.
- The most important support levels currently to do this will be 1.0475 and 1.0390 respectively.
It may move towards it if the results of the US economic growth data and the number of weekly jobless claims and Powell's statements support further tightening of the Federal Reserve Bank's policy.
On the other hand, if today's results are weaker, the Euro/Dollar EUR/USD may find an opportunity to rebound upwards and there will be no first break in the downward trend without moving towards the resistance levels 1.0650 and 1.0775 respectively.
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