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- Euro bounces off six-month lows near 1.0630, looks at Lagarde
Euro bounces off six-month lows near 1.0630, looks at Lagarde
- The Euro regains some balance vs. the US Dollar.
- Stocks in Europe opened with strong gains on Friday.
- EUR/USD appears to have met contention around 1.0630 so far.
- The USD Index (DXY) gives aways part of the recent strong advance.
- The ECB seems to have entered an impasse regarding rate hikes.
- Industrial Production and Consumer Sentiment will take centre stage in US.
Following Thursday’s drop to multi-month lows, the Euro (EUR) managed to pick up some upside traction against the US Dollar (USD), encouraging EUR/USD to retake the 1.0660 region in the wake of the opening bell in Europe at the end of the week.
The improvement in sentiment surrounding the pair comes pari passu with (finally) firmer results from the Chinese docket published during early trade, which helps the risky assets regain some poise.
On the flip side, the Greenback recedes from recent multi-month tops around 105.40 when tracked by the USD Index (DXY) against the backdrop of further gains in US yields across different time frames so far on Friday.
The monetary policy landscape remains unchanged, with investors steadfast in their anticipation of potential interest rate cuts by the Federal Reserve (Fed) taking place at some point in the second quarter of 2024.
Shifting our attention to the European Central Bank (ECB), following the dovish rate hike on Thursday, market participants have begun to factor in an extended pause. This shift in sentiment is driven by the ongoing deterioration of key economic indicators in Germany and the wider euro area. Furthermore, inflation in the region continues to exceed the bank's target. The concerns of excessive tightening, along with mounting worries of stagflation, further support this outlook.
Back on the domestic calendar, final inflation figures in Italy saw the CPI rise 0.3% MoM in August and 5.4% over the last twelve months. Later, Balance of Trade results for the broader euro zone are also due, while ECB President Christine Lagarde will speak at the ECOFIN meeting in Spain.
Across the Atlantic, all the attention will be on the release of Industrial Production readings prior to the preliminary gauge of the Michigan Consumer Sentiment.
Daily digest market movers: Euro grabs some breathing space
- The EUR manages to pick up some traction vs. the USD.
- US and German yields accelerate the upside so far on Friday.
- Markets now see the ECB pausing its tightening campaign.
- Chinese Retail Sales, Industrial Production improved in August.
- Investors keep assessing probable rate cuts by the Fed in Q2 2024.
- US docket will take centre stage later in the NA session.
- The ECB’s C. Lagarde should keep investors entertained later.
Technical Analysis: Euro still risks a drop to 1.0516
EUR/USD seems to have met initial contention around the 1.0630 region, or March lows, for the time being.
Should EUR/USD successfully break below its September low at 1.0631 (September 14), it may enter a phase of retesting the March low at 1.0516 (March 15). If the latter level is breached, it could initiate a possible examination of the 2023 low at 1.0481 (January 6).
On the other hand, the primary focus currently lies on targeting the crucial 200-day SMA at 1.0827. If the pair surpasses this level, a bullish momentum might ensue, leading to a challenge of the interim 55-day SMA at 1.0926 ahead of the weekly peak at 1.0945 (August 30). The surpass of the latter could pave the way for an advance towards the psychological level of 1.1000 and the August high at 1.1064 (August 10). If the spot clears this area, it could alleviate some of the bearish pressure and potentially aim for the weekly top at 1.1149 (July 27), followed by the 2023 high at 1.1275 (July 18).
It is crucial to note that as long as the EUR/USD remains below the 200-day SMA, there remains a possibility of a sustained decline in the pair.
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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