The EUR/USD currency pair closed August strong, and in fact it finished the month at the upper end of its range. It, too, carried a bullish momentum into the end of month. As bulls remained in control, the pair was finding strength even when it lacked the technical support. As things stand now, the EUR/USD trades in the high 1.1700s, having reclaimed most of the losses incurred earlier this week. Key German economic indicators, the IFO Survey and GDP revisions helped prop up the Euro on a whole. Still, market activity is extremely thin as traders await even more key data releases.
September is around the corner, and the daily graphic of the EUR/USD pair indicates a weakly bullish 20 Simple Moving Average (SMA). This SMA has been providing stellar intraday support. This SMA is now sitting at around 1.1520, providing a solid backstop for buyers. On a technical level the pair have made scant progress. It must reclaim above 1.1740 to maintain its bullish structure and find the next significant resistance area at 1.1830, the yearly high.
Economic Data Influencing Market Sentiment
That’s why recent economic data from Germany has been so important in defining market sentiment towards the Euro. The IFO Survey posted a positive statewide Business Climate index. It rose to 89, an improvement over July’s 88.6 reading. This net, positive change is a good sign — it suggests that businesses are becoming more optimistic about their present and near future economic prospects.
Additionally, sentiment in the private sector rose sharply, as the measure of expectations jumped up to 91.6—well above the forecasted 90.2. These results reaffirm the trend that businesses are becoming increasingly confident in their future prospects. Once conditions return to normality, they will be able to invest more.
Beyond these surprises, overall annualized inflation numbers held firm at 2.6%, exactly what the market had anticipated. The core annual inflation rate has increased by 0.1 points to 2.9%, from 2.8%. Yet it is still very much in keeping with projections. Relatedly, this data points to a very stable inflation environment. It’s likely to have knock-on effects on forthcoming monetary policy deliberations at the European Central Bank.
Not all economic indicators reflected positivity. According to the latest GfK Consumer Confidence Survey, there’s a record high 10-point drop in consumer sentiment for September. It fell to -23.6, last down from a revised -21.7 in August. This decrease indicates that consumers are starting to feel a pinch and are less optimistic about their short-term financial outlook and spending.
Technical Analysis and Market Dynamics
Technically speaking, from a technical perspective the EUR/USD pair has traded a narrow range throughout the month and week lacking any clear momentum. The 100 and 200 SMAs are about to cross below the shorter 20 SMA. This positioning reflects a lackluster bullish momentum that may prevent a quick upside breakout in the short term.
Support is seen at 1.1590, and then the previously mentioned 20-week SMA at 1.1520. These degrees are the lifesource for consumers. They do it without losing control over the documentary pair while swimming in a continuing sea of economic unpredictability and competitive disruption.
Though faced with these stiff headwinds, by the end of the week, the EUR/USD managed to claw back almost all of Monday’s losses. Traders are looking ahead to this week’s key data releases that could help provide a clearer picture of the pair’s potential near-future direction.
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Market Outlook and Future Developments
Looking ahead, market participants are expected to remain cautious as they anticipate key economic data releases that could impact both the Euro and Dollar valuation. Next week’s Nonfarm Payrolls will be key. In so doing, it stands to provide critical insight into the future of U.S. employment trends – insights that could help inform key Federal Reserve policy making decisions.
Indeed, the market’s state of consolidation at present is a testament to the market widespread uncertainty among traders on what the EUR/USD pair will do next. This period of relative calm may be disrupted by upcoming economic indicators or geopolitical developments that can sway investor sentiment.
As the world feels the effects of inflation, energy, climate change, and geopolitical pressures, traders have a lot to watch for. Surprises like a regulatory development or an important economic report are enough to rapidly change the landscape.
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