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- Euro faces some headwinds near 1.0860, looks at German CPI, US docket
Euro faces some headwinds near 1.0860, looks at German CPI, US docket
- The Euro comes under pressure and recedes to 1.0880 vs. the US Dollar.
- Stocks in Europe opened Wednesday’s session on a mixed note.
- EUR/USD has left behind two consecutive daily gains so far on Wednesday.
- The USD Index (DXY) bounces off lows and climbs to 103.60.
- US and German yields attempt a mild rebound early in Europe.
- Inflation in Spain picked up pace in August at 2.6% YoY.
The Euro (EUR) is now losing some upside momentum vs. the US Dollar (USD), forcing EUR/USD to retreat to the 1.0860 region after Tuesday’s multi-day peaks, just pips away from 1.0900 the figure.
On the flip side, the Greenback manages to regain the smile and leaves behind part of the data-led sharp pullback seen in the previous session, lifting the USD Index (DXY) back to the 103.60 zone following the opening bell in the old continent midweek and amidst a mild bounce in US yields across different maturities.
In the meantime, the Federal Reserve’s (Fed) tighter-for-longer approach now appears somewhat dented in response to recent data releases, which also pour cold water over expectations of a 25 bps rate hike at the November 1 gathering.
By contrast, there is no news around the European Central Bank (ECB) regarding its potential decision on rates once the summer season is over.
Data-wise in the region, flash inflation figures in Spain see the CPI rising 2.6% in the year to August, while Consumer Confidence in Italy receded a tad to 106.5 for the current month. Later in the session, the final Consumer Confidence in the broader euro area is due along with advanced inflation figures in Germany.
In the US, investors’ attention will be on the release of the ADP report, followed by another estimate of the Q2 GDP Growth Rate, Pending Home Sales and flash Goods Trade Balance figures.
Daily digest market movers: Euro meets some resistance ahead of 1.0900
- The EUR gives away part of the recent gains vs. the USD.
- German and US bond yields pick up some renewed traction.
- Market participants will now shift their focus to the ADP results.
- JOLTs Job Openings dropped to the lowest level since March 2021 in July.
- The Fed's'sighter-for-longer narrative seems to be losing momentum.
- Investors now see the Fed on hold for the remainder of the year.
- Further stimulus measures are likely to be taken by the PBoC in the near term.
- BoJ’s Tamura favoured the current loose monetary conditions.
Technical Analysis: Euro faces a minor hurdle at 1.0930
EUR/USD’s weekly recovery faltered just ahead of 1.0900 the figure on Tuesday. The current upside momentum could leave further room for extra gains in the short-term horizon.
In case bulls push harder, EUR/USD is expected to face a minor resistance level at the weekly high of 1.0930 (August 22), which also appears reinforced by the provisional 100-day SMA. Further up comes the interim 55-day SMA at 1.0967 prior to the psychological 1.1000 barrier and the August top at 1.1064 (August 10). Once the latter is cleared, spot could challenge the weekly peak 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.
The resumption of the downward bias could motivate the pair to revisit the August low of 1.0765 (August 25) ahead of the May low of 1.0635 (May 31) and the March low of 1.0516 (March 15). The loss of this level could prompt a test of the 2023 low at 1.0481 (January 6) to re-emerge on the horizon.
Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA (1.0810) is breached in a convincing fashion.
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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