The Federal Reserve's indications yesterday that reducing bond purchases are imminent increased the gains of the US dollar against the other major currencies. The EUR/USD plunged to the 1.1683 support level, its lowest in more than a month, and settled around 1.1715 as of this writing. It's an importand day for the euro, with economic releases for the bloc amid.
Yesterday, Fed Chair Jerome Powell said at a press conference that “I think if the economy continues to advance broadly in line with expectations, I think we can move forward easily at the next meeting” in November. Meanwhile, the US central bank's policy-making committee has indicated that it expects to start raising the benchmark interest rate sometime next year - earlier than members envisioned three months ago, and a sign that they are concerned about persistent high inflation pressures.
However, Powell stressed that the rate hike would not happen until after the Fed ends its bond purchases, a process he said will likely continue until the middle of next year.
In contrast, the ECB's first climate stress test shows a higher default risk for banks in fire-stricken southern Europe, and argues that an early and orderly transition to greener energy may have costs — but will pay off for the European economy in the long run. The bank warned that the other two negative scenarios - a hasty attempt to catch up or simply do nothing - risk much higher costs and losses in economic output, especially under its 30-year stress test.
The bank warned that businesses located in areas most vulnerable to changes in weather could face severe and frequent natural disasters, which could affect creditworthiness. These risks are unevenly distributed in Europe, with northern regions more prone to flooding and southern countries more prone to heat stress and forest fires. The costs of the transition will affect industries such as coal mining and electricity generation that emit large amounts of greenhouse gases - and their bank finances will likely take a hit if loans or bonds are not repaid.
Technical analysis of the pair
With yesterday's losses for the EUR/USD, the technical indicators are heading towards oversold levels. Buying is recommended from the support levels at 1.1665 and 1.1580. On the other hand, the psychological resistance 1.2000 will remain vital to changing the current trend to the upside. The resistance at 1.1850 will be a prelude for the bulls to move towards it.
The PMI readings for the manufacturing and services sectors for the Eurozone economies will be announced along with the monthly report from the European Central Bank. From the United States of America, weekly jobless claims and PMI readings for the manufacturing and services sectors will be announced.