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- Euro remains under pressure near 1.0700 ahead of data, Fedspeak
Euro remains under pressure near 1.0700 ahead of data, Fedspeak
- The Euro resumes the decline against the US Dollar.
- Stocks in Europe extend their weekly losses on Thursday.
- EUR/USD could visit the 1.0700 region soon.
- The USD Index (DXY) flirts with the key 105.00 zone.
- Another revision of Q2 Eurozone GDP growth rate is due.
- Usual weekly Claims and Fed speakers come next in the US docket.
The Euro (EUR) maintains its bearish stance against the US Dollar (USD) for yet another session, prompting EUR/USD to trade close to key support around the 1.0700 zone on Thursday.
On the USD-side, the Greenback trades in the area of multi-month peaks near the 105.00 hurdle when gauged by the USD Index (DXY) amidst the small knee-jerk move in yields across different maturities. These came against the backdrop of increasing speculation over rate cuts by the Federal Reserve (Fed) around March 2024 and divided opinions around a potential rate hike in November.
Back to the European Central Bank (ECB), consensus among Board members remains pretty divided regarding the interest rate decision due on September 14.
In the domestic calendar, Industrial Production in Germany contracted 0.8% on month in July, while another revision of the Gross Domestic Product (GDP) growth rate in the eurozone for the April-June period will be published later in the European morning.
In the US, all the attention will be on the usual weekly release of Initial Jobless Claims for the week ended on September 2, along with speeches by Philadelphia Fed Patrick Harker (voter, hawk), New York Fed John Williams (permanent voter, centrist), Atlanta Fed Raphael Bostic (2024 voter, hawk), and FOMC Governor Michelle Bowman (permanent voter, centrist).
Daily digest market movers: Euro looks offered amidst firm risk-off mood
- The EUR resumes the selling bias against the USD.
- US yields gives away part of the recent advance.
- Chinese trade surplus shrank in August.
- The ECB’s interest rate decision in September is a close call.
- Markets continue to price in Fed rate cuts in Q2 2024.
- The outlook for the German economy continues to worsen.
Technical Analysis: Euro risks a drop to 1.0630 zone
EUR/USD remains well under pressure near the key contention area around 1.0700. The loss of this zone could open the tap to further retracement in the short-term horizon.
If EUR/USD clears Wednesday's low of 1.0702, it could revisit the May 31 low of 1.0635 prior to the March 15 low of 1.0516. The loss of the latter could prompt a potential test of the 2023 low at 1.0481 seen on January 6.
On the upside, spot is expected to target the critical 200-day Simple Moving Average (SMA) at 1.0821. North from here, bulls should meet the the weekly top of 1.0945 (August 30), which appears reinforced by the provisional 55-day SMA at 1.0948 and comes prior to the psychological 1.1000 barrier and the August 10 top at 1.1064. Once the latter is cleared, spot could challenge the July 27 peak at 1.1149. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 registered on July 18.
A sustained decline is likely in EUR/USD while it remains below the 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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