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- Euro rebounds from multi-week lows near 1.0860, focus on US data
Euro rebounds from multi-week lows near 1.0860, focus on US data
- Euro remains under pressure below 1.0900 vs. the US Dollar.
- Stocks in Europe kick off the session in the red territory.
- EUR/USD drops to fresh lows near 1.0860 early on Thursday.
- The USD Index (DXY) meets initial resistance around 103.60.
- EMU Balance of Trade figures come next on the domestic docket.
- Initial Jobless Claims, Philly Fed index take centre stage in the NA session.
The Euro (EUR) has managed to regain some stability against the US Dollar (USD) and is now showing signs of gaining momentum for EUR/USD after it dropped to fresh six-week lows around 1.0860 on Thursday.
Meanwhile, the continuous upward movement of the Greenback is pushing the USD Index (DXY) to reach new highs that have not been seen in several weeks, approximately at 103.60. This rise is being supported by the similarly strong upward trend in US yields across various maturity periods.
The ongoing weakness in the EUR/USD pair is also in line with investors' interpretation of the FOMC Minutes, which were released late on Wednesday. The prevailing sentiment among most participants is that due to the inflation-related risks, there might be a need to further increase interest rates.
Looking at the broader context of monetary policy, the discussion around the Federal Reserve's stance of maintaining a tighter policy for an extended period seems to have been revived. This is in response to the resilience displayed by the US economy, despite some easing in the labour market and lower inflation readings in recent months.
Within the European Central Bank's realm (ECB), internal disagreements among its Council members regarding the continuation of tightening measures after the summer period are causing renewed weakness that is impacting the Euro negatively.
As for the euro schedule, the Balance of Trade figures in the broader euro area for June will be the primary noteworthy release on Thursday.
On the US calendar, the focus will be on the weekly Initial Jobless Claims and the Philly Fed Manufacturing Index, with secondary attention on the Conference Board's Leading Index for July.
Daily digest market movers: Euro appears under scrutiny in the sub-1.0900 area
- The EUR looks offered vs. the USD below 1.0900.
- Concerns surrounding the Chinese economic economy weigh on sentiment.
- The Australian job report disappoint expectations in July.
- The Norges Bank is expected to hike rates by 25 bps.
- Markets’ focus remains on the US Claims and Philly index.
Technical Analysis: Euro could slip back to the 1.0830 region
EUR/USD faces extra headwinds and retreats to new lows in the 1.0860 region on Thursday, opening the door to a potential visit to the July low near 1.0830 sooner rather than later.
In case of further losses, EUR/USD could retest the July low of 1.0833 (July 6) ahead of the significant 200-day SMA at 1.0787, and eventually the May low of 1.0635 (May 31). Deeper down, there are additional support levels at the March low of 1.0516 (March 15) and the 2023 low at 1.0481 (January 6).
Occasional bullish attempts, in the meantime, are expected to meet initial hurdle at the August high at 1.1064 (August 10) prior to the weekly top at 1.1149 (July 27). If the pair clears the latter, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 (July 18). Once this region is surpassed, significant resistance levels become less prominent until the 2022 high at 1.1495 (February 10), which is closely followed by the round level of 1.1500.
Furthermore, the positive outlook for EUR/USD remains valid as long as it remains above the important 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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