Market update: Euro lifted slightly by US downgrade

The euro appears to be slightly supported after Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA. Still, monetary policy and growth differentials suggest the single currency is unlikely to benefit much from Wednesday’s early lift, at least in the near term.

EUR/USD: Consolidation could continue

Both central banks, the US Federal Reserve, and the European Central Bank are in wait-and-watch mode with regard to further tightening, leaving very little monetary policy advantage from a relative perspective. From an absolute perspective, higher US rates clearly stand out.

However, growth differentials appear to be in favour of the US, arguing for a softer EUR/USD. The US economic surprise index is at its highest level since 2021, while the Euro Area economic eurprise endex is at its lowest level since 2020.

EUR/USD’s recent softness could extend a bit further given the stiff hurdle on the 200-week moving average. As highlighted in a previous update, the near-term bias appears to be of consolidation within a broadly constructive outlook. Only a fall below 1.0500-1.0600, including the early-2023 lows, would pose a threat to the broader uptrend.

EUR/USD weekly chart

EUR/AUD: Broader bullish trend reaffirmed

EUR/AUD has turned higher from near quite strong support at the mid-July low of 1.6230. From a short-term perspective, the trend is at best sideways. However, from a medium-term perspective, the trend is up given the higher-top-higher-bottom sequence since late 2022.

The top end of the range is the April high of 1.6800, while the immediate support is at 1.6230.

EUR/AUD weekly chart

EUR/NZD: Boxed in a range

The price action in recent weeks gives very little sense of direction, being boxed in a 1.7200-1.8100 range. Still, within the choppy range, EUR/NZD continues to hold above the crucial floor on the 89-day moving average.

Zooming out, though, on the monthly charts, the break this year above the 2022 high of 1.7500 keeps the broader bullish bias intact.

EUR/NZD monthly chart

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