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- Euro comes under pressure and revisits 1.0850 ahead of Jackson Hole
Euro comes under pressure and revisits 1.0850 ahead of Jackson Hole
- Euro gives away part of its recent gains vs. the US Dollar.
- Stocks in Europe open Thursday’s session with decent gains.
- EUR/USD returns to the 1.0850 region ahead of key event.
- The USD Index (DXY) prints decent gains in the mid-103.00s.
- Business Confidence in France weakens to 96 in August.
- Initial Jobless Claims, Durable Goods Orders will be in the limelight.
The Euro (EUR) loses part of Wednesday’s shine vs. the US Dollar (USD) and motivates EUR/USD to give away part of the recent gains and retreat to the 1.0850 region in the wake of the opening bell in Europe on Thursday.
On the other side of the road, the Greenback manages to regain some balance following the marked rejection from Wednesday’s multi-week tops near 104.00 the figure and gyrates around the 103.50 area when tracked by the USD Index (DXY) amidst the still absence of a clear direction in the US money markets.
Moving forward, all the attention is expected to be on the kick-off of the Jackson Hole Symposium, while consensus among investors sees Chief Jerome Powell’s speech on Friday falling in line with his message at the FOMC gathering on July 26.
Regarding monetary policy, there is currently a renewed debate surrounding the Federal Reserve's dedication to maintaining a more stringent approach over an extended period of time. This heightened attention stems from the remarkable resilience of the US economy, despite slight relaxation in the labour market and lower inflation figures observed in recent months.
Meanwhile, within the European Central Bank (ECB), internal divisions among its Council members have emerged regarding the possibility of prolonging tightening measures beyond the summer season. These disagreements are fueling a renewed perception of fragility, which is exerting a detrimental influence on the Euro.
A very light docket in the euro area saw Business Confidence weaken to 96 in August, while the usual Initial Jobless Claims, the Chicago Fed National Activity Index, and Durable Goods Orders for the month of July are all due across the pond.
Daily digest market movers: Euro looks cautious ahead of Jackson Hole
- The EUR weakens a tad vs. USD near the 1.0850 area.
- The cautious tone ahead of key events favour the US Dollar.
- The downside pressure in US yields appears somewhat exhausted.
- Investors’ focus remains on the Jackson Hole event.
- Fed’s tighter-for-longer narrative keeps running in the background.
- Chair Powell’s speech would likely reinforce the battle against inflation.
- The Fed is likely to maintain rates unchanged until Q1 2024.
- Iran, Saudi Arabia and UAE to become new members of BRICS in 2024.
Technical Analysis: Euro looks supported by the 200-day SMA
EUR/USD’s downward bias appears so far propped up by the 1.0800 region, home of recent lows and the critical 200-day SMA.
Further retracements could force EUR/USD to revisit recent lows around 1.0800, an area coincident with the significant 200-day SMA. The loss of this region puts a potential test of the May low of 1.0635 (May 31) back on the radar ahead of 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 1.0964 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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