Before Thanksgiving, investors in the USA decided to reduce their engagement in the stock market, which translated into drops in the major stock indices. Impulses for the drops were largely disappointing results from companies in the computer production sector. This influenced sentiment. US macro data proved solid and strengthened the market participants’ belief that the Fed would proceed more cautiously, which could be interpreted in such a way that a swift reduction of interest rates is unlikely at the moment. Despite this, the dollar weakened, leading to a rise in the main currency pair to 1.0570. The euro gained after statements from the ECB.
Today, Americans are missing, and tomorrow’s session on Wall Street will be abbreviated. Attention will shift to the Old Continent. Consumer sentiment will be assessed. The ESI index will be published. Recently, there has been a decline in sentiment which may be confirmed today. In addition, the euro may be sensitive to the preliminary inflation reading from Germany, where estimates assume an increase to 2.3 percent.
Yesterday, after statements from one of the representatives of the European Central Bank, the market reduced its expectations of a 50-basis-point cut, and such a scenario is now very unlikely. Mrs. Schnabel spoke in a slightly less dovish tone and that was enough for the market to react. She negated the possibility of a sharper reduction in the cost of money and simultaneously doubted that the ECB could lower rates to a very low level (visible before the pandemic) during the entire cycle of cuts. She pointed out that she sees the neutral interest rate in the range of 2 to 3 percent; therefore, considering that the deposit rate currently stands at 3.25 percent, there is not much space for easing.
Additionally, the risk of price increases was underscored by the ECB President. Lagarde stated that the trade war negatively impacts long-term economic growth and “may have a somewhat inflationary character in the short term”. She suggested that instead of retaliating, one should negotiate when it comes to tariffs.
The EUR/USD quotations rebounded to the level of 1.0585 and approached the horizontal resistance at 1.06. So far, the main currency pair has only performed a corrective rise, and there are currently no signs suggesting a change in the medium-term downtrend. Today, the rate is headed south again and currently indicates a level of 1.0535.
Author: Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/spadki-na-wall-street-przed-swietem-dziekczynienia-euro-zyskuje-po-wypowiedziach-ebc-10806
