(MENAFN- Daily Forex)
Amid a sudden upward momentum, the EUR/USD pair gained, surpassing the psychological resistance level of 1.1200 and reaching 1.1214 before facing profit-taking, which was frequently mentioned as a possibility in case the 1.1200 resistance was broken. It is currently trading around 1.1136. Recently, the Euro's gains in the Forex market were driven by positive news from China and signals from US federal Reserve officials that encouraged investors. Also, China announced measures to boost its slowing economy, which improved investor confidence.
However, expectations of interest rate cuts by the European Central Bank increased after disappointing economic data. According to economic data, Germany's Ifo business climate index fell to 85.4 in September, down from 86.6 in August and below the expected 86.0, indicating that business confidence has declined for four consecutive months. Additionally, recent Purchasing Managers' Index data for the Eurozone, Germany, and France were disappointing and showed that the Eurozone's private sector activity had returned to contraction, as the end of the Olympics affected the French services sector and problems in German automakers like Volkswagen caused manufacturing to decline further.
Already, the European Central Bank had cut interest rates by 25 basis points in September and has hinted at more cuts to come due to low inflation and weak economic growth in the eurozone Rescues the EUR/USD
According to forex trading, the Euro is recovering from recent losses, and analysts say China is the reason. The EUR/USD exchange rate returned to the 1.12 resistance level in mid-week trading, after being as low as 1.1083 on Monday, amid expectations that China's economic recovery could help rescue the Eurozone economy. Thanim Islam, an analyst at Equals Money, said: "The Euro has risen broadly on news of Chinese stimulus."
On Tuesday, China cut the reserve requirement ratio for banks by 0.5 percentage points, reducing it to 9.5%. It also lowered interest rates, cutting the 7-day reverse repo rate by 0.2 percentage points to 1.5%. Authorities announced the provision of billions of dollars in liquidity facilities to help revive the stock market. Additionally, significant cuts to mortgage loan ratio requirements were also announced. The Euro had risen by 0.60% against the US dollar on the day, reversing a 0.40% decline recorded on Tuesday after a September Purchasing Managers' Index survey showed that the Eurozone economy had slipped into contraction, due to the deepening slowdown in German industry.
Overall, the data raised the odds that the European Central Bank will follow up its September rate cut with another one in October. Meanwhile, the market had thought we would wait until December before making the next move.
Nevertheless, Tuesday's news of a surprise announcement of a massive Chinese economic stimulus package suggests a turnaround for the eurozone economy if the new measures succeed in boosting Chinese demand. Clearly, that's because China is a crucial market for German industrial and manufacturing exports. Indeed, the ongoing slump in Chinese growth is one of the main reasons why Germany is struggling (along with rising gas prices in the wake of Russia's invasion of Ukraine).Analysts' Opinions on Chinese Stimulus and Its Impact on the Euro
Derek Halpenny, head of global markets research at MUFG Bank, said, "Increased optimism about global growth would help, and certainly the stimulus measures announced by China would add to the momentum of dollar selling." Carsten Brzeski, an analyst at ING Bank, said that potential positive surprises for the German economy cannot be ruled out by the end of the year. He added in a note issued in response to the disappointing German Ifo survey on Tuesday, "Industrial production could come to the rescue. It would only take a slight improvement in industrial order books to turn the inventory cycle and bring industrial production back to growth. Admittedly, this would be a cyclical improvement coming from very low levels and does not change much of a country stuck in recession."
Meanwhile, Mitsubishi UFJ analysts are not yet convinced that the ECB will cut interest rates further.“Until core inflation returns to the target, the risk is that the ECB will now continue to pursue a more cautious approach to monetary easing even in weaker-than-expected growth conditions.”
Also, the euro may be poised to rise against the dollar if it manages to break above a key technical resistance line.
Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money EUR/USD Technical analysis and forecast:
As we mentioned before, the psychological resistance at 1.1200 will remain the most important for bulls to control the EUR/USD price trend, while at the same time, technical indicators will move towards strong overbought levels. A settlement above it will provide the euro with strong and sustained positive momentum factors. In the same time frame, the support levels of 1.1060 and 1.0885 will remain the most important for hopes of a rise to evaporate. The price of the euro dollar will be affected today by the announcement of the US economic growth reading, in addition to the number of weekly jobless claims and US durable goods orders. Also, the most important statements by a number of US Federal Reserve policy officials led by Jerome Powell.
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