Title: EUR/USD Hovers Near Two-Week Low as US Dollar Strengthens on Safe-Haven Demand
By Capital Market, sourced from Business Standard
The EUR/USD currency pair dipped on Friday, reaching its lowest levels in two weeks as the US dollar rose amid a broader wave of safe-haven demand. This strength in the dollar was driven by renewed concerns over global economic conditions, geopolitical tensions, and soft economic data from Europe, which collectively weighed on the euro.
The price moved close to 1.089, its weakest point since mid-December, as the dollar found support from risk-averse sentiment and investor repositioning in the opening sessions of the new year.
Key Takeaways:
– EUR/USD traded near a two-week low around 1.089, down marginally during the session.
– The US dollar index (DXY) remained firm, staying above the psychological level of 102.
– Risk-off mood in financial markets enhanced investor preference for safe-haven assets like the dollar.
– Weak economic indicators from the euro zone fed bearish sentiment toward the common currency.
– Market participants are awaiting further cues from upcoming economic data and central bank minutes.
US Dollar Gains Footing on Global Risk Aversion
One of the primary reasons contributing to the US dollar’s strength during the session was the global risk-off sentiment, which drove investors toward assets considered safe havens. Geopolitical tensions and nervousness about the pace of global recovery after recent macroeconomic developments revived demand for the dollar.
– The dollar index held firm above the 102 mark, indicating broad-based demand for the greenback.
– Investors sought safe-haven currencies amid rising uncertainty around global inflation and interest rate trajectories.
– Flows into dollar-based assets increased as market participants grew cautious following sluggish growth data out of Asia and Europe.
European Weakness Continues to Weigh on the Euro
Data emerging from the euro zone showed continuing economic weakness, further dragging on the euro’s performance. Soft inflation numbers and contraction in manufacturing activity raised concerns about the pace of recovery across major euro area economies.
– Germany’s Consumer Price Index (CPI) fell below expectations, suggesting inflationary pressures were cooling faster than anticipated.
– Euro zone economic sentiment indicators pointed to sluggish business activity, especially within industrial and manufacturing sectors.
– Analysts expect the European Central Bank (ECB) to remain cautious in its monetary policy outlook despite previously hawkish signals, given the recent data.
Technical Factors Behind EUR/USD Movement
EUR/USD experienced a steady decline over the course of the week, breaking key technical support levels and reflecting downward momentum in the pair.
– The pair broke below the 20-day and 50-day moving averages, signaling further downside pressure.
– Momentum indicators such as the Relative Strength Index (RSI) hinted at a bearish bias but showed room before reaching oversold territory.
– Support is seen near the recent low around 1.0860, with further downside potentially driving the pair toward the 1.0800 mark in the short term.
– Resistance is now placed near 1.0940, where the pair previously encountered selling pressure.
Investors Eye US Non-Farm Payrolls and Fed Minutes
The market focus turned to upcoming key events, particularly the closely-watched US non-farm payrolls report and minutes from the last Federal Reserve meeting. These would provide critical insight into the economic outlook and potential policy moves by the US central bank in the months ahead.
– A strong labor market report could reinforce expectations for the Fed to maintain a higher-for-longer interest rate stance.
– Market speculation continues around the timing of the first potential rate cut, with many traders now forecasting a dovish pivot later in 2024.
– Traders are pricing around a 66 percent chance that the Fed could start lowering rates as early as May, according to recent CME FedWatch data.
– Attention is also on wage growth data, which could be indicative of inflationary pressures in the labor market.
Safe-Haven Currencies Benefit from Market
Read more on EUR/USD trading.