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- Euro treads water around 1.0570 ahead of Eurozone CPI, Fedspeak
Euro treads water around 1.0570 ahead of Eurozone CPI, Fedspeak
- The Euro trades without direction against the US Dollar.
- Stocks in Europe open Wednesday’s session in a mixed tone.
- EUR/USD alternates ups and downs around 1.0570.
- The USD Index (DXY) looks sidelined in the low 106.00s.
- Eurozone final inflation figures will be in the spotlight later in the session.
- Housing data, Fedspeak take centre stage in the US docket.
The Euro (EUR) navigates a narrow range against the US Dollar (USD), prompting EUR/USD to hover around the 1.0570 zone on Wednesday.
The Greenback keeps the trade in the low 106.00s when measured by the USD Index (DXY) amidst the equally irresolute price action in the global markets, against the generalized cautious stance in light of increasing geopolitical risks.
Continuing to centre attention on monetary policy, investors anticipate that the Federal Reserve (Fed) will uphold its position of not touching interest rates throughout the remainder of the year. Meanwhile, participants in the financial markets contemplate the possibility of the European Central Bank (ECB) halting policy modifications, despite inflation levels surpassing the bank's target and mounting concerns about the potential for an economic downturn or stagflation in the region.
On the domestic calendar, the final inflation rate for September in the broader Eurozone is due later.
Data-wise, in the US, the usual weekly Mortgage Applications tracked by MBA are due in the first turn, while the housing sector is expected to be at the centre of the debate following the release of Housing Starts and Building Permits. In addition, the Fed’s Beige Book and TIC Flows are also due.
Additionally, markets’ attention will also be on speeches by FOMC Governor Christopher Waller (permanent voter, centrist), NY Fed President John Williams (permanent voter, centrist), FOMC Governor Michelle Bowman (permanent voter, hawk), and Philly Fed President Patrick Harker (voter, hawk).
Daily digest market movers: Euro looks for direction around 1.0570
- The EUR trades in a vacillating fashion against the USD.
- US and German yields look poised to extend their march north.
- Markets remain focused on the Fed’s tighter-for-longer stance.
- Investors see the ECB could pause its tightening cycle until Q3 2024.
- The crisis in the Middle East could get worse before it gets better.
- Chinese data surprised to the upside.
- UK CPI rose 6.7% YoY in September, a tad above estimates.
Technical Analysis: Euro faces next up barrier of note at 1.0640
EUR/USD trades in an inconclusive fashion around 1.0570 against the backdrop of a lack of direction in the Greenback.
If the rising trend continues, EUR/USD may revisit the October 12 high of 1.0639, as well as the September 20 top of 1.0736 and the significant 200-day Simple Moving Average (SMA) of 1.0820. A break above this level might signal an effort to break above the August 30 peak of 1.0945 and target the psychological level of 1.1000. Any more gains over the August 10 high of 1.1064 might take the pair towards the July 27 top of 1.1149 and possibly the 2023 peak of 1.1275 seen on July 18.
In the case that selling pressure persists, the 2023 low at 1.0448 from October 3 might be revisited, as well as the major support of 1.0400. If this level is broken, it may pave the way for a retest of the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
As long as the EUR/USD continues below the 200-day SMA, the possibility of continuous bearish 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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