EUR Base Rate Analysis: Evaluating Potential Rebound

EUR Base Rate Analysis: Evaluating Potential Rebound

The week in Asia commenced on a promising note as risk-related activities gained momentum. Fed Chair Jerome Powell’s comments during the Jackson Hole Symposium held considerable significance. His assurance of caution in potential EUR base rate hikes helped ease investor apprehensions about his hawkish stance on inflation.

China’s Positive Equity Market Actions

China’s authorities took significant steps to bolster the equity market, including a 50% reduction in stamp duty on equity trading and a slowdown in Initial Public Offerings (IPOs). These actions positively impacted Mainland stocks and echoed a past pattern where reduced stamp duty led to a substantial stock market rally.

Positive Market Indicators

Most Asian markets and S&P 500 futures saw upward movements driven by a risk-on sentiment. The US Dollar (USD) displayed weaker performance against G10 currencies but remained stronger against the Japanese Yen (JPY) due to the prevailing risk-on sentiment.

Australian Dollar (AUD) Leading Gains

The Australian Dollar (AUD) outperformed by gaining strength against the USD. This surge was fueled by Chinese authorities’ support for the equity market and robust Australian retail sales data.

Euro Forecast: Assessing Negative Factors

The EUR/USD pair faced negative impacts in August due to a resurgent USD and deteriorating economic data from the Eurozone. Concerns about Germany’s declining economy raised doubts about the trajectory of the region’s largest economy, impacting investor expectations for ECB rate hikes.

Possible Hawkish Skip and Short-term Fair Value Trends

A “hawkish skip” in September is possible, where the ECB maintains current rates but commits to future tightening. Short-term fair value trends indicate that 100 EUR to USD’s current level is lower than expected, considering rate spreads and other drivers.

EUR Base Rate: Upcoming Eurozone Events

The Eurozone’s flash Harmonized Index of Consumer Prices (HICP) inflation estimate for August is awaited. Positive inflation data might indicate a more hawkish ECB stance, impacting the EUR’s direction.

Technical Analysis: Consolidation and Upward Breakout

EUR/USD displayed a minor gain and exhibited a rebound from the 200-day Exponential Moving Average (EMA), forming a hammer pattern. A resistance point at the 50-day EMA could influence the trajectory. Market sentiment depends on Jerome Powell’s statements and the Jackson Hole Symposium’s impact.

EUR Swap Rate: Anticipating Symposium Catalyst

The EUR base rate’s stability, marginal negativity, and interaction with key moving averages reflect ongoing stabilization efforts. The Jackson Hole Symposium’s outcome could prompt a distinct market movement, but subdued activity is likely until then.