The EUR/USD exchange rate is facing a challenging time, hovering near three-month lows due to a risk-averse market sentiment. Despite attempts to rally, the pair has retreated below 1.1510, approaching session lows at 1.1500. This vulnerability stems from a nearly 1.3% sell-off over the past four trading days, triggered by the US Dollar's surge after the Federal Reserve's 'hawkish cut' last week.
On Monday, the US Dollar continued its ascent, seemingly unaffected by disappointing manufacturing data in the US. The October ISM Manufacturing PMI revealed an eighth consecutive month of economic contraction in the sector, with orders declining and employment levels remaining low.
Adding to the mix, Federal Reserve policymakers have reiterated their differing views on the path forward. San Francisco Fed President Mary Daly and Chicago Fed President Austan Goolsbee adopted a cautious stance, while Governor Stephen Miran argued that current policy is too restrictive.
In the Eurozone, European Central Bank President Christine Lagarde is scheduled to speak later today, although no significant policy updates are expected. Meanwhile, the US government shutdown will result in the absence of key economic data, including the US JOLTS Job Openings and Factory Orders for September. Investors will instead turn their attention to Wednesday's ADP Employment Change release for October to gain further insights into labor market trends.
The Euro's performance today is highlighted in the table below, showcasing its percentage change against major currencies. Notably, the Euro gained the most against the New Zealand Dollar.
USD EUR GBP JPY CAD AUD NZD CHF
USD 0.10% 0.55% -0.48% 0.10% 0.61% 0.75% 0.04%
EUR -0.10% 0.46% -0.60% 0.00% 0.50% 0.65% -0.06%
GBP -0.55% -0.46% -1.04% -0.45% 0.05% 0.19% -0.51%
JPY 0.48% 0.60% 1.04% 0.61% 1.11% 1.25% 0.54%
CAD -0.10% -0.00% 0.45% -0.61% 0.50% 0.64% -0.06%
AUD -0.61% -0.50% -0.05% -1.11% -0.50% 0.13% -0.56%
NZD -0.75% -0.65% -0.19% -1.25% -0.64% -0.13% -0.71%
CHF -0.04% 0.06% 0.51% -0.54% 0.06% 0.56% 0.71%
The heat map provides a visual representation of these currency movements, with the base currency on the left and the quote currency on the top. For instance, the percentage change for EUR/USD is displayed in the corresponding box.
In today's market movers, the US Dollar stands tall amidst cautious market conditions. The US Dollar Index (DXY) has retreated from recent highs, but downside attempts remain limited. Moderate risk aversion and reduced expectations of further rate cuts by the Federal Reserve in December have offset the negative impact of weak manufacturing activity figures.
On Monday, the October ISM Manufacturing PMI declined to 48.7 from September's 49.1, falling short of market expectations of a mild improvement. The New Orders Index and Employment sub-index both showed contraction, remaining below the 50.0 threshold.
San Francisco Fed President Mary Daly defended the October rate cut but expressed concerns about high inflation levels, emphasizing the need for a 'moderately restrictive' policy. Chicago Fed President Austan Goolsbee prioritized inflation concerns over the labor market, advocating for interest rates to combat rising price pressures.
In contrast, Stephen Miran, the latest Fed committee member appointed by US President Donald Trump, argued that current monetary policy is too restrictive and that he will continue supporting rate cuts.
Despite this, futures markets have reduced the likelihood of a December rate cut to 67% from over 90% a week ago. This shift has kept US Treasury yields and the US Dollar steady near recent highs.
In Europe, the Eurozone HCOB Manufacturing PMI figures confirmed preliminary estimates, showing that the sector's activity improved to a standstill at 50.0, up from 49.8 in September.
Technically speaking, the EUR/USD is attempting a bounce from the 1.1500 support level, coinciding with the US Dollar Index trading near the psychological 100.00 level. The 4-hour RSI indicator remains in negative territory below 50.00, but the MACD is poised for a bullish crossover.
While a recovery may be on the cards for Tuesday, the scope appears limited. The previous support area near 1.1545 (October 14 and 30 lows) is likely to challenge bulls before the October 22 and 23 lows at 1.1580. Further upside targets include the October 30 high near 1.1635.
To the downside, immediate support is found at Tuesday's low near 1.1500. A break below this level could open the path towards the 261.8% Fibonacci retracement of the late October rally, near 1.1450, which is the measured target of the broken triangle pattern.
In terms of risk sentiment, the terms 'risk-on' and 'risk-off' are commonly used to describe investors' appetite for risk during a given period. In a 'risk-on' market, investors are optimistic and willing to buy riskier assets, leading to rising stock markets, commodity prices (except gold), and the currencies of commodity-exporting nations. Cryptocurrencies also tend to rise.
Conversely, a 'risk-off' market sees investors adopting a more cautious approach, favoring less risky assets with more certain returns. This typically leads to rising bond prices, especially for major government bonds, and a boost for safe-haven currencies like the Japanese Yen, Swiss Franc, and US Dollar.
The Australian Dollar, Canadian Dollar, New Zealand Dollar, and minor currencies like the Ruble and South African Rand tend to rise in 'risk-on' markets due to their heavy reliance on commodity exports for growth.
During 'risk-off' periods, the US Dollar, Japanese Yen, and Swiss Franc are the major currencies that typically strengthen. This is due to the US Dollar's status as the world's reserve currency and the perceived safety of US government debt. The Yen and Swiss Franc benefit from their respective government bonds and strict banking laws, respectively.
