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- Euro loses the grip and challenges 1.0800
Euro loses the grip and challenges 1.0800
- Euro remains well on the defensive vs. the US Dollar.
- Stocks in Europe maintain the positive streak on Wednesday.
- EUR/USD approaches the key support at 1.0800.
- The USD Index (DXY) advances to new two-month highs near 104.00.
- Flash PMIs in the euro area came in mixed for the current month.
- Housing data, advanced PMIs are due next across the pond.
There is no respite for the selling pressure around the Euro (EUR) against the US Dollar (USD), forcing EUR/USD to trade in new multi-week lows and dispute the key support at 1.0800 the figure on Wednesday.
Further gains in the Greenback now encourage the USD Index (DXY) to trade at shouting distance from the key barrier at 104.00 in a context of further correction in US yields across different maturities following recent peaks.
In terms of monetary policy, there has been renewed discussion regarding the Federal Reserve's commitment to maintaining a more restrictive stance for an extended period of time. This renewed focus is a result of the US economy's resilience, even amidst a slight easing in the labour market and lower inflation readings in recent months.
At the European Central Bank (ECB), internal disagreements among its Council members have surfaced regarding the continuation of tightening measures beyond the summer period. These disagreements are contributing to a renewed sense of weakness that is having a negative impact on the Euro.
Looking ahead, market participants are expected to approach the upcoming Jackson Hole Symposium and Chairman Jerome Powell's speech in the latter part of the week with caution.
In the euro docket, flash PMIs in Germany and the broader euro area showed a small improvement in the manufacturing sector vs. renewed weakness in the services gauges.
On this, money market futures indicate a probability of only 40% for a 25 bps increase in interest rates by the ECB in the upcoming month. This is in contrast to the situation before the data was released, where the probability was approximately 60%.
In the US, advanced PMIs are also due, seconded by the usual weekly Mortgage Applications tracked by MBA and New Home Sales.
Daily digest market movers: Euro keeps the offered stance in place near 1.0800
- The EUR weakens further vs. USD and trades closer to 1.0900.
- The risk-off trade props up the upside bias in the US Dollar.
- US yields seem to have entered an impasse following recent peaks.
- Investors’ focus remains on the Jackson Hole event due later in the week.
- Fed’s tighter-for-longer narrative dominates the mood among traders.
- The Fed is likely to maintain rates unchanged until Q1 2024.
Technical Analysis: Euro could accelerate losses below the 200-day SMA
EUR/USD’s decline gathers extra impulse and gradually approaches the key support at 1.0800, which appears also underpinned by the proximity of the crucial 200-day SMA (1.0797).
Further retracements could force EUR/USD to revisit the significant 200-day SMA at 1.0797 ahead of 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).
In case bulls regain the initiative, the pair is expected to meet an interim barrier at the 55-day SMA at 109620961 prior to the psychological 1.1000 the figure and the August high at 1.1064 (August 10). Once the latter is cleared, spot could challenge the weekly top at 1.1149 (July 27). If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 (July 18). Further up comes 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 could be threatened is spot breaks below 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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