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- Euro attempts a mild rebound to 1.0470 ahead of key US data
Euro attempts a mild rebound to 1.0470 ahead of key US data
- The Euro navigates within a tight range against the US Dollar.
- Stocks in Europe open Wednesday’s session with losses.
- EUR/USD trades without a clear direction below 1.0500.
- The USD Index (DXY) hovers around the 107.00 region.
- Services PMIs in Europe and ECB’s Christine Lagarde will be in the limelight.
- The ADP report and ISM Services PMI take centre stage in the US.
The Euro (EUR) trades without a clear direction against the US Dollar (USD), motivating EUR/USD to gyrate around the 1.0470 region early in the European morning on Wednesday.
On the USD-side of the equation, the Greenback clings to the 107.00 region following Tuesday’s new 2023 tops in the 107.30-107.35 band when tracked by the USD Index (DXY), always sustained by the so-far unabated march north in US yields across the curve.
A look at the monetary policy front notes that the Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) before the end of the year, according to investors. Simultaneously, market talks about a potential stop in policy changes at the European Central Bank (ECB) continue, despite inflation levels above the bank's objective and mounting fears about a future recession or possibly stagflation in the area.
In the domestic calendar, final Services PMIs are due, along with a speech by ECB President Christine Lagarde.
In the US data space, the usual weekly Mortgage Applications by MBA are due in the first turn, seconded by the ADP Employment Change, final readings of the Services PMI, Factory Orders, and the always-relevant ISM Services PMI.
Daily digest market movers: Euro seem unable to gather serious upside traction
- The EUR looks slightly bid vs. the USD on Wednesday.
- US and German yields look poised to extend the upside momentum.
- Investors see the Fed to raise interest rates one more time before year-end.
- Markets expect the ECB's tightening campaign to stall.
- BoE’s Andrew Bailey rules out changing the bank’s inflation goal.
- Speculation remains on the rise around FX intervention in USD/JPY.
Technical Analysis: Extra losses not ruled out
EUR/USD now looks consolidative near the area of recent yearly lows in the sub-1.0500 region.
On the downside, the loss of the 2023 low of 1.0448 (October 3) should prompt EUR/USD to meet the next support at the round level of 1.0300 prior to minor support at the weekly lows of 1.0290 (November 30 2022) and 1.0222 (November 21 2022).
In case of occasional bullish attempts, the pair should encounter the next up-barrier at 1.0617 (September 29) prior to the weekly high of 1.0767 (September 12), before reaching the crucial 200-day SMA at 1.0825. If the pair breaks beyond this level, it may set up a challenge of the weekly top at 1.0945 (August 30) and the psychological barrier of 1.1000. The surpass of the latter might prompt the pair to test the August peak of 1.1064 (August 10) ahead of the weekly high of 1.1149 (July 27) and the 2023 top of 1.1275. (July 18).
However, it is critical to remember that as long as the EUR/USD remains below the 200-day SMA, the possibility of more negative pressure exists.
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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