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- Euro resumes the upside and re-targets recent monthly tops around 1.0970
Euro resumes the upside and re-targets recent monthly tops around 1.0970
- Euro reverses two consecutive daily declines and regains traction.
- Stocks markets in Europe opens slightly offered on Tuesday.
- The improvement in the risk complex helps the pair so far.
- US traders returns to their desks following Monday’s holiday.
- Investors’ attention remains on the Fed, ECB future moves.
- Cautiousness is expected to pick up ahead of Powell’s testimonies.
The European currency (EUR) has gained some upward momentum, prompting EUR/USD to ignore two consecutive daily declines and resume its recent upward trend on turnaround Tuesday.
This improved sentiment towards riskier assets can be attributed in part to the People's Bank of China's (PBoC) recent decision to cut its 1-year medium-term lending facility (MLF) by 10 bps, aimed at bolstering the Chinese economy as it emerges from the pandemic.
Investors are closely monitoring the potential interest rate decisions by the Federal Reserve and the European Central Bank (ECB), with both expected to resume their hiking campaigns in July.
In Germany, Producer Prices declined by 1.4% MoM in May but rose by 1.0% YoY, while Current Account and Construction Output data will be released in the broader Euroland before speeches by ECB's Board members E. McCaul and L. De Guindos.
In the US, the housing sector will be the primary focus, with speeches by St. Louis Fed member J. Bullard (a hawkish 2025 voter) and NY Fed member J. Williams (a centrist permanent voter) also on the agenda.
Daily digest market movers: Euro bulls regain control of the sentiment
- The renewal of market optimism puts pressure on the US dollar.
- The PBoC lowers the 1-year medium-term lending facility (MLF) to support the ongoing slow economic rebound.
- The testimonies of the Federal Reserve's Chair, J. Powell, will be the significant events to watch later this week.
- Currently, the primary factor influencing the price movement of the currency pair is the divergence in policies between the ECB and the Fed.
Technical Analysis: Focus re-shifts to 1.1000
EUR/USD has pulled back slightly from its recent monthly high of 1.0970, which was reached on June 16. In order to continue its upward momentum, the EUR must quickly surpass this level, potentially allowing it to reach the psychological barrier of 1.1000. Further resistance levels include the 2023 high of 1.1095 (April 26), the round level of 1.1100, and the weekly high of 1.1184 (March 31, 2022), which is supported by the 200-week SMA, currently at 1.1181.
In the event that the bears take control, there is an interim contention at the 55-day SMA at 1.0881. Should this level be breached, there are no significant support levels until the May low of 1.0635 (May 31), followed by the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).
Euro FAQs
What is the Euro?
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
What is the ECB and how does it impact the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
How does inflation data impact the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How does economic data influence the value of the Euro?
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
How does the Trade Balance impact the Euro?
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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