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- Euro extends the choppiness around 1.1000 ahead of US ADP
Euro extends the choppiness around 1.1000 ahead of US ADP
- Euro trades with small losses near 1.0980 vs. the US Dollar.
- Stocks in Europe extend the downtrend on Wednesday’s opening.
- EUR/USD returns to the sub-1.1000 area amidst rising cautiousness.
- The USD Index (DXY) picks up extra pace above 102.00.
- Spanish unemployment shrank by 11K individuals in July.
- The ADP report gathers all the attention on Wednesday.
The Euro (EUR) keeps its erratic performance unchanged so far this week and retreats marginally against the US Dollar (USD), motivating EUR/USD to gyrate around the 1.0980 region following the opening bell in the old continent on Wednesday.
Tracked by the USD Index (DXY), the Greenback manages to maintain the strong recovery in place since mid-July and still looks to consolidate the recent breakout of 102.00 – which was helped by rising US yields and some loss of appeal in the risk-linked galaxy.
During this week, the attention of market participants will be drawn toward crucial economic data releases in both the United States and Europe. These releases are expected to challenge the recently emphasized data-dependency approach that has been adopted by both the Federal Reserve and the European Central Bank (ECB) in their decisions on interest rates.
The absence of relevant data releases in the Euro area should leave all attention to the US calendar, where the publication of the ADP Employment Change is expected to be at the centre of the debate. In addition, MBA will release its weekly report on Mortgage Applications for the week ended July 28.
Daily digest market movers: Euro lacks convincing strength to surpass 1.1000
- The EUR comes under pressure after briefly testing 1.1000 vs. the USD.
- The USD Index navigates the area of 3-week tops above 102.00.
- BoJ’s Uchida left the door open to intervention if yields approach 1%.
- The US ADP report is expected at around 190K in July.
- Investors see the Fed on hold for the remainder of the year.
- Market focus remains on the US labour market this week.
Technical Analysis: Euro’s outlook remains negative below 1.1150
EUR/USD could not sustain an earlier move to the area beyond the psychological 1.1000 hurdle, returning to the 1.0980 zone soon afterwards instead.
If bears push harder, EUR/USD should put the weekly low of 1.0943 (July 28) to the test sooner rather than later ahead of a probable move to the interim 55-day and 100-day SMAs at 1.0913 and 1.0912, 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 1.0733 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 other hand, occasional bullish attempts could motivate the pair to initially dispute the weekly top at 1.1149 (July 27). Above this level the downside pressure could mitigate somewhat and encourage the pair to test 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 (February 10), which is closely followed by the round level of 1.1500.
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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