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- Euro extends the upside to new monthly peaks near 1.1030
Euro extends the upside to new monthly peaks near 1.1030
- Euro advances for the fourth session in a row vs. the US Dollar.
- Stocks in Europe opens mostly with gains on Tuesday.
- EUR/USD pushes harder and reaches the 1.1025/30 band.
- Germany’s Final inflation figures matched the preliminary readings.
The Euro (EUR) is performing well, maintaining its rebound and extending optimism on turnaround Tuesday. This time, it has encouraged the EUR/USD to surpass the psychological barrier at 1.1000 and reach fresh 2-month highs. Meanwhile, the US Dollar (USD) is experiencing an intense sell-off and the USD Index (DXY) has fallen to multi-week lows in the 101.70 region.
The FX universe currently favors risk appetite against the backdrop of the renewed loss of momentum in US and German yields. Despite this, recent strong results from key US fundamentals indicate a resilient US economy and a tight labor market, reinforcing the likelihood of a 25 basis point rate hike by the Federal Reserve at its July 26 gathering. Similarly, a 25 bps rate raise is anticipated at the European Central Bank's (ECB) meeting later in the month.
Francois Villeroy, a Board member of the ECB, suggests that food inflation should lose traction in the second half of the year and hints that the CPI should average 2.5% in 2024. He also argues that the tightening cycle is approaching its peak, where the bank should remain for a while.
In the meantime, there are increasing concerns about an economic slowdown on both sides of the Atlantic, and discussions continue about the potential future actions of the Fed and ECB in normalizing their monetary policies.
In Germany, the final Inflation Rate for June showed the CPI rising 0.3% MoM and 6.4% over the last twelve months, matching the advanced prints. Later in the European morning, the ZEW Institute will publish its Economic Sentiment survey for both Germany and the broader euro area for the current month.
In the US, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are due, followed by a speech from St. Louis Fed James Bullard (2025 voter, hawk).
Daily digest market movers: Euro looks strong ahead of US CPI
- The EUR advances past the 1.1000 hurdle on Tuesday.
- Germany’s final CPI rose 6.4% in the year to June, as expected.
- UK labour market report came in short of estimates in April/May.
- Investors continue to see a 25 bps rate hike by the Fed, ECB in July.
- ECB Villeroy ruled out a wage spiral in France and the euro area.
- Fed’s Bullard will speak later in the US session.
Technical Analysis: Euro now shifts now targets the 2023 peak
The ongoing price action in EUR/USD hints at the idea that further gains might be in store in the short-term horizon.
The continuation of the uptrend now targets the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. Further up comes the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.
On the downside, the weekly low at 1.0833 (July 6) appears reinforced by the provisional 100-day SMA. The breakdown of this region should meet the next contention area not before the May low of 1.0635 (May 31), which remains propped up by the crucial 200-day SMA (1.0630). South from here emerges the March low of 1.0516 (March 15) prior to the 2023 low of 1.0481 (January 6).
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA, today at 1.0630.
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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