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- Euro bounces off six-month lows near 1.0615 ahead of US jobless claims data, Lagarde speech
Euro bounces off six-month lows near 1.0615 ahead of US jobless claims data, Lagarde speech
- The Euro remains offered against the US Dollar in the wake of the Fed event.
- Stocks in Europe started Thursday session deep in the red.
- EUR/USD rebounds from the vicinity of 1.0615.
- The USD Index (DXY) reaches new highs.
- The Fed left the door open to another 25 bps rate hike before year-end.
- Weekly Initial Jobless Claims, Philly Fed Index will take centre stage in the US calendar.
- ECB President Christine Lagarde speaks later in the session.
Following an early dop to fresh multi-month lows, the Euro (EUR) manages to trim part of the losses against the US Dollar (USD), prompting EUR/USD to regain the 1.0650 region in Europe's opening bell on Thursday.
The Greenback extends its march north as investors keep digesting the Federal Reserve (Fed) event, reaching a new six-month high near 105.70 when measured by the USD Index (DXY). The index trades just a few pips away from the year-to-date top of around 105.90 seen on March 8.
The pullback in the pair comes in tandem with some corrective moves in the short end of the US yield curve against humble gains in the belly and the long end. Meanwhile, the 10-year bund yields regain the area of recent peaks near 2.75%.
Following the hawkish hold by the Fed at its meeting on Wednesday, Chairman Jerome Powell emphasized that there is still a significant journey ahead in achieving the target inflation rate of 2%. Additionally, he stated that the FOMC decided to maintain the current interest rates in light of the progress made thus far but remains prepared to raise rates when deemed suitable.
In the eurozone's economic calendar, the preliminary reading of Consumer Confidence tracked by the European Commission is due, along with a speech by the ECB President Christine Lagarde.
In the US, usual weekly Initial Jobless Claims are due, followed by the Philly Fed Manufacturing Index, the CB Leading Economic Index and Existing Home Sales.
Daily digest market movers: Euro drops to new lows near 1.0600
- The EUR rebounds from fresh lows against the USD.
- US and German yields advance marginally on Thursday.
- The Fed left the door open to another 25 bps rate raise in the next months.
- The BoE is expected to hike rates by 25 bps.
- Markets price in probable rate cuts by the Fed in Q3 2024.
- An impasse in the ECB’s hiking cycle appears to be gathering traction.
- Intervention fears surround the price action around USD/JPY.
Technical Analysis: Euro opens door to drop toward 1.0516
EUR/USD kicks off Thursday’s session with marked losses and reaches new lows in the 1.0620-1.0615 band.
If the EUR/USD breaches its September 14 low of 1.0616, there is a chance it could revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 from January 6.
On the upside, there is a minor resistance level at the weekly high of 1.0767 from September 12, followed by the more significant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could pave the way for a continued recovery towards the temporary 55-day SMA at 1.0911, with the possibility of reaching the August 30 top of 1.0945. Surpassing the latter could bring the psychological level of 1.1000 into focus, followed by the August 10 peak of 1.1064. Beyond that, the pair might retest the July 27 high at 1.1149 and potentially reach the 2023 top at 1.1275 from July 18.
As long as the EUR/USD remains below the 200-day SMA, there is a chance that the pair will continue to face downward pressure.
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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