The European Dollar Extended Its Losses Against The Firm Greenback.
The European dollar extended its losses against its US counterpart on Tuesday session as the strength of the greenback continues to knock down a basket of currencies. The recently concluded Fed rate hike boosted the US dollar while brushed off the uncertainty in the US economic recovery. While the US financial market was likely enjoying the hovering figure, the other emerging economies are striving to balance their respective financial slate. Will there be a change of path for the euro? Or will it stay in the defensive ground?
EUR/USD Movement
As of 14:20 UTC, the Euro lost 0.31 percent against the US dollar after trading below its 20-day SMA of 1.03985 and to its 50-day SMA of 1.04262. The pair opened at 1.03775 and eventually settled at 1.03579, extending the downtrend from Monday’s overnight session at 1.04034.
EUR/USD found resistance at 1.04034 and broke the support at 1.03651. In case of a fall through, the new support would be at 1.03475 while a breakthrough would mean a new resistance at 1.04080.
From a wider perspective, the pair was at its lowest level in the third quarter. In October, EUR/USD plunged at 1.08459 while in November the pair dropped to 1.05167.
The euro managed to snatch gains from the USD after the result of the US presidential election. It turned out that the victory of Trump casted doubts in the recovery of the US economy. However, the gains were limited as the investors perceived the bright side of the increase in fiscal spending promoted by Trump.
The trend of the EUR/USD slightly adjusted as well after the Italian vote, whereas the administration failed to convince the majority to make constitutional amendments. Currently, another political event seemed to haunt the European market and European Union- the French election in January 2017.
Outside Factors
Meanwhile, the assassination of Russian Ambassador to Russia Andrei Karlov in Ankara art gallery sent a negative notion in the Russia-Turkey foreign relations. Russian president, Vladimir Putin explained in its interview that the crime that was committed as a provocation aimed at disrupting the normalization of Russian-Turkish relations and disrupting the peace process in Syria that is being actively advanced by Russia, Turkey and Iran.
Russia happens to have a strong trade and economic relations with Europe. Aside from being the world’s largest nation which belongs to Euro-Asia (Eurasia), the European Union accounted approximately 45 percent of Russia’s total trade volume last year.
The shooting incident disrupted the stability of the currency market after Federal Reserve Chairwoman Janet Yellen lauded the strength of the employment sector in the US in nearly a decade. Technically, the political and economic equilibrium would drive an interest rate adjustment. A rate increase would then result in a currency appreciation.
The European Central Bank maintains its interest rate on the main refinancing operations at 0.00 percent, marginal lending facility at 0.25 percent and the deposit facility at -0.40 percent. The Bank has extended its quantitative easing program in 2017, but the bond purchase was cut from €80 billion to €60 billion.
In the most recent data provided by the ECB, the current account surplus in the Eurozone expanded from EUR27.7 billion in September to EUR28.4 billion ($29.7 billion) in October. The current-account -balance indicates the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers, showing a sneak peak of the economy’s health.
Both political and financial sectors of the Euro-region were exposed to greater volatility. The total exit of Britain from the EU is set to happen in the first quarter of 2017 plus the French presidential happening in January. The post effect of the Italian referendum was not analyzed yet.
To make things worse for the euro, the Fed announced that three more hikes may happen in the coming year. These considerations will push the European currency even lower in the coming sessions.