By Areena Fx- The Euro holds near a fresh two-month low against the US Dollar, on track for its worst weekly performance this year.
- Investors are awaiting French President Macron to name the next prime minister in the next hours.
- The Dollar thrives on political uncertainty, ahead of the release of US consumer confidence data.
EUR/USD is posting moderate gains on Friday, trading right above 1.1580 at the time of writing after hitting fresh two-month lows near 1.1540 the previous day. The common currency has lost over 1.4% so far this week and is on track for its worst weekly performance this year, undermined by the uncertain political and fiscal situation in France.
The French Prime Minister (PM), Sébastien Lecornu, resigned unexpectedly earlier this week, and the market is awaiting President Emmanuel Macron to appoint a new one. The next PM will face the challenging task of approving a tightening budget, amid fierce opposition within the parliament, which has led to the ousting of his five predecessors in less than two years.
The US Dollar (USD), on the other hand, is drawing support from concerns about France and similar worries in Japan, as the pro-stimulus new President of the Liberal Democratic Party Sanae Takaichi emerges as the likely next Prime Minister. With the release of most US economic indicators delayed due to the US government shutdown, recent dovish comments from Fed policymakers have failed to dent USD strength.
In the economic calendar on Friday, Italy’s Industrial Output data for August will be the only event worth mentioning in Europe, while in the US, the University of Michigan Consumer Sentiment is expected to show a further deterioration in October
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.18% | -0.05% | -0.14% | -0.03% | -0.04% | 0.04% | -0.25% | |
| EUR | 0.18% | 0.16% | -0.04% | 0.14% | 0.18% | -0.01% | 0.02% | |
| GBP | 0.05% | -0.16% | -0.16% | -0.05% | 0.02% | 0.05% | -0.19% | |
| JPY | 0.14% | 0.04% | 0.16% | 0.20% | 0.17% | 0.19% | -0.01% | |
| CAD | 0.03% | -0.14% | 0.05% | -0.20% | -0.05% | 0.05% | -0.13% | |
| AUD | 0.04% | -0.18% | -0.02% | -0.17% | 0.05% | 0.04% | -0.21% | |
| NZD | -0.04% | 0.01% | -0.05% | -0.19% | -0.05% | -0.04% | -0.25% | |
| CHF | 0.25% | -0.02% | 0.19% | 0.00% | 0.13% | 0.21% | 0.25% |
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: US Dollar reigns amid political uncertainty
- The US Dollar has outperformed its peers this week. The USD Index (DXY), which measures the value of the Dollar against six major currencies, has rallied nearly 1.7% this week so far and is set for its best weekly performance in the year to date. The political impasse in France and concerns that the new Japanese cabinet might hamper the Bank of Japan’s (BoJ) tightening plans have triggered a rush for safety this week, boosting speculative demand for the Greenback.
- In France, President Macron is expected to name his sixth Prime Minister within the next 24 hours, to avert the opposition’s demands for parliamentary elections. The market, however, remains sceptical about his chances of approving a new budget, amid a deeply divided parliament.
- On Thursday, the European Central Bank’s September Monetary Policy Meeting Accounts revealed an increasing concern about the uncertain global context, although policymakers considered that there is no immediate pressure to change the bank’s policy. Regarding inflation, the committee has shown some divergence, with some members observing upside risks while others see price pressures abating. The impact of the accounts on the Euro was marginal.
- In the US, the New York Federal Reserve (Fed) President, John Williams, affirmed that he is open to cutting interest rates further, as the deteriorating labour market warrants attention. Meanwhile, Governor Michael Barr called for a cautious approach to monetary easing as tariffs could cause persistent inflation.
- Later on Friday, the preliminary US University of Michigan Consumer Sentiment Index will provide one of the few data releases since the government’s shutdown. The survey is expected to show a further deterioration in consumers’ confidence, with the index dropping for the third consecutive month to 54.2 in October from September’s 55.1.
Technical Analysis: EUR/USD remains vulnerable below 1.1600
EUR/USD broke a key support area at 1.1600 on Thursday, dropping to fresh two-month lows and highlighting the strong bearish momentum. Technical indicators are pointing lower, with the Relative Strength Index (RSI) on the 4-hour chart low but still above oversold levels. In these conditions, rallies look likely to attract sellers.
To the upside, the pair might find resistance at the previous support area right near 1.1575 (August 27 low) followed by Wednesday’s low, right above 1.1600. Further up, the September 25 low and October 9 high, in the area of 1.1650, will come into focus.
Immediate support is at the descending channel bottom, as seen on the 4-hour chart since mid-September, and Thursday’s low near 1.1540. Further down, the August 5 low, near 1.1525, would be the last support area ahead of the August 1 low, at 1.1395.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.