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- Euro generates traction and reclaims 1.0800, looks at ECB-speak
Euro generates traction and reclaims 1.0800, looks at ECB-speak
- The Euro rebounds from the 1.0770 region vs. the US Dollar.
- Stocks in Europe kick off the week on a positive note.
- EUR/USD has so far been supported around 1.0770.
- The bullish view in USD Index (DXY) looks limited near 104.50.
- German yields add to Friday’s advance at the beginning of the week.
- US markets will be closed on Monday due to Labor Day holiday.
- Germany’s trade surplus shrank to €15.9B in July.
- The EMU Sentix Index is due later in the region.
- The ECB’s Christine Lagarde speaks later in the session.
The Euro (EUR) regains some upside traction vs. the US Dollar (USD) and encourages EUR/USD to reclaim the area above the key 1.0800 the figure at the beginning of the week.
On the other hand, the Greenback meets some downside pressure and slips back to the 104.00 region when tracked by the USD Index (DXY), as investors continue to assess Friday’s mixed results from the US jobs report (+187K jobs).
In the meantime, bets on the Fed’s pause of its hiking campaign for the rest of the year remain firm amidst incipient speculation of interest rate cuts not before March 2024. From the ECB, uncertainty keeps running high around the potential decision on rates beyond the summer amidst market chatter around stagflation.
From the speculative community, net longs in the single currency shrank to levels last seen in early July during the week ended on August 29, according to the CFTC positioning report.
While US markets will be closed on Monday, the euro calendar saw the German trade surplus diminish to €15.9B in July, while the Investor Confidence gauged by the Sentix index for the current month is due later in the European morning. In addition, ECB President Christine Lagarde and Board members Fabio Panetta, Philip Lane, and Frank Elderson will also speak on Monday.
Daily digest market movers: Euro gathers traction amidst Dollar weakness
- The EUR manages to regain ground lost vs. the USD.
- Trading conditions are expected to remain thin due to the US holiday.
- Investors’ attention should shift to ECB-speak later on Monday.
- Lower inflation, cooling labour market support the Fed’s pause on rates.
- Markets expect the Fed to keep rates unchanged in the next few months.
Technical Analysis: Euro faces the next up-barrier at the 200-day SMA
EUR/USD picks up some pace and manages to retest the 1.0800 region, just ahead of the key 200-day SMA (1.0817).
Further recovery in EUR/USD is now expected to target the critical 200-day SMA at 1.0817. North from here, bulls should meet the the weekly top of 1.0945 (August 30) ahead of the interim 55-day SMA at 1.0961 and 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 revisit 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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