Consequently, the EUR/USD currency pair found plenty of momentum to rally on Tuesday. It was trading with slight positive bias in the 1.1525-1.1530 band. The pair is up sharply for the second day in a row. We do think this trend is propelling by the changing expectation for the economy and changing outlooks for monetary policy. Traders are looking ahead to the release of final German Gross Domestic Product (GDP) data for the third quarter. In return, they hope to receive useful overall information about the state of the German economy.
The Gross Domestic Product, as reported by Statistisches Bundesamt Deutschland, represents the total value of all goods and services produced in Germany. It continues to be a very important measure of our economic activity and general health as a country. Economists and politicians alike continue to tout GDP as the all-encompassing measure that encapsulates the economic performance and vitality of our great nation. That next announcement is sure to set trader’s hearts a flutter. More importantly, it will push the EUR/USD cross in one direction or the other.
Even despite its recent advances the EUR/USD Pair has struggled with a persistent lack of follow-through buying momentum. Traders aren’t taking any chances with big data releases around the corner. Consequently, the market continues to be trapped inside the huge range that was created during Thursday’s big reversal session. Today’s current spot prices show that propane is up a little more than a dime–but less than a tenth of a percent–for the day.
Recently, comments from New York Fed President John Williams changed the tone in markets. He characterized the stance of monetary policy as “modestly restrictive.” His comments just suggest that for now, the Federal Reserve is committed to staying the course. That said, there remains a path—albeit a narrow one—for the Fed to begin cutting rates within the next year. Futures traders jumped immediately at his words. They raised their dovish expectations, now pricing in close to an 80% chance that the Fed will cut borrowing costs at its next meeting.
Analysts note that, in addition to hawkish signals from U.S. monetary policy, nearly all economists surveyed by Reuters predict the ECB will hold its deposit rate unchanged this year. To this day, they continue to forecast that no changes will happen by the end of 2024. This expectation continues to contribute to the positive risk tone in the market. This further undermines the U.S. dollar’s safe haven currency status.
As investors and traders wait for the final German Q3 GDP to be released, they’re focusing on other influential U.S. economic indicators. US PPI and monthly Retail Sales data pushed back later than the usual schedule. We’ll be awaiting numbers for Pending Home Sales, the Richmond Manufacturing Index as well. These earnings reports are set to move markets and could add to volatility in both dollars and pesos.
The supportive factors conjure a perfect storm for the euro. Based on recent and upcoming economic data, EUR/USD should rally sharply if all goes as expected in the near-term. As many analysts note, any major changes in the economic fundamentals may change traders’ perceptions and determine the market’s course going forward.