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- Euro comes under pressure and breaches 1.0900 ahead of EMU data, ECB
Euro comes under pressure and breaches 1.0900 ahead of EMU data, ECB
- The Euro gives away some gains vs. the US Dollar.
- Stocks in Europe kicked off the session on a positive note.
- EUR/USD puts 1.0900 to the test amidst the USD recovery.
- The USD Index (DXY) picks up pace and rebounds from 103.00.
- US and German yields trade slightly on the defensive.
- Germany’s labour market report came in mixed in August.
- Flash CPI in France rose 1.0% MoM and 4.8% YoY in August.
The Euro’s (EUR) recent uptrend vs. the US Dollar (USD) appears somewhat dented, which motivates EUR/USD to break below the key 1.0900 the figure during the European morning on Thursday.
In the meantime, the Greenback regains a small smile and prompts the USD Index (DXY) to bounce off Wednesday’s two-week lows in the 103.00 neighbourhood amidst declining US yields across the curve and further investors’ repricing of a pause in the Fed’s normalization process for the next few months.
In the meantime, the narrative surrounding the Federal Reserve’s (Fed) tighter-for-longer stance now appears to have dwindled following the recent weaker-than-expected results from US fundamentals.
By contrast, there is no news around the European Central Bank (ECB) regarding its potential decision on rates once the summer season is over.
In the domestic calendar, Retail Sales in Germany contracted 0.8% MoM in July and 2.2% over the last twelve months. Still in Germany, the Unemployment Change increased by 18K individuals in August and the Unemployment Rate ticked higher to 5.7%. Later in the session, advanced inflation figures in the broader euro are are due ahead of the publication of the ECB Accounts for the July 27 meeting.
In the US docket, all the attention will be on the release of inflation tracked by the PCE and Core PCE for the month of August, seconded by usual Initial Jobless Claims, Personal Income, Personal Spending and the speech by Boston Fed Chair Susan Collins.
Daily digest market movers: Euro comes down to retest 1.0900
- The EUR surrenders part of the recent strong advance vs. the USD.
- Fundamentals in Germany continue to deteriorate.
- Investors see the Fed keeping rates on hold in the next few months.
- BoE’s H. Pill said the country is facing second-round effects.
- Inflation in France is seen rising more than expected in August.
- Investors now see the Fed on hold for the remainder of the year.
- The ECB's's. Schnabel said there is uncertainty around the peak rate.
- Further stimulus measures are likely to be taken by the PBoC in the near term.
- BoJ’s Nakamura said economic recovery is needed to end the loose policy.
- The focus now shifts to flash EMU CPI and US PCE.
Technical Analysis: Euro looks at 1.0950 as the next minor hurdle
The three-day rebound in EUR/USD seems to have met quite a decent obstacle ahead of the 1.0950 region so far.
In case bulls regain the upper hand and EUR/USD surpasses the weekly top of 1.0945 (August 30), the pair is expected to meet the provisional 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 initially test the key 200-day SMA at 1.0813 ahead of the August low of 1.0765 (August 25). The breach of the latter exposes the May low of 1.0635 (May 31) prior to the March low of 1.0516 (March 15) and the 2023 low at 1.0481 (January 6).
Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA 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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