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- Euro remains under pressure well south of 1.1100, looks at data, FOMC
Euro remains under pressure well south of 1.1100, looks at data, FOMC
- Euro fades the initial bullish move to 1.1090 against the US Dollar.
- Stocks in Europe start Tuesday’s session in a mixed bias.
- EUR/USD probes new lows near 1.1050 post-IFO.
- Germany’s Business Climate surprises to the downside in July.
- US Consumer Confidence will take centre stage later in the session.
The Euro (EUR) is experiencing fluctuating gains and losses against the US Dollar (USD) on what is known as turnaround Tuesday, causing EUR/USD to move around the 1.1060 region.
Earlier in the day, the pair reached daily highs in the range of 1.1085/90, but failed to maintain the momentum, leading to a corrective move towards new lows around 1.1050. This downward trend was aided by lower-than-expected prints from the Business Climate in Germany, as tracked by the IFO institute.
Looking ahead, we can expect a higher level of volatility in the currency pair as both the Federal Reserve and the European Central Bank (ECB) have important meetings scheduled for later in the week. Furthermore, both central banks are expected to raise interest rates by 25 bps, but there is a growing divergence in their short-term plans for future tightening.
On this, the Fed appears to be nearing the end of its hiking cycle, suggesting a potential pause or slowdown in future rate increases. In contrast, some officials from the ECB have recently expressed less hawkish views on the likelihood of further rate hikes beyond the summer.
In the euro docket, the IFO’s Business Climate for the month of July fell short of expectations, coming in at 87.3.
Meanwhile, in the US, the FHFA house price index for the month of May is due to be released, followed by the Conference Board’s Consumer Confidence index, which is always highly relevant.
Daily digest market movers: Euro remains unable to gather serious upside traction
- The EUR appears relegated to the lower end of the range against the USD.
- The USD Index seems to have met some initial hurdle around 101.40.
- Investors see the Fed and the ECB hiking rates this week.
- US, German yields rebound mildly in the European morning.
- The Fed starts its 2-day meeting later today.
Technical Analysis: Euro leaves the door open to further weakness
EUR/USD extends the decline to the 1.1050 zone so far on Tuesday.
Further downside in EUR/USD should meet immediate contention at the so far weekly low of 1.1052 (July 25) ahead of the psychological 1.1000 mark, all seconded by provisional support at the 55-day and 100-day SMAs at 1.0900 and 1.0890, respectively. The loss of this region could open the door to a potential visit to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0699 and the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).
On the upside, the next hurdle appears at the 2023 high at 1.1275 (July 18). Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.
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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