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- Euro looks indecisive around 1.0540 ahead of Powell, data
Euro looks indecisive around 1.0540 ahead of Powell, data
- The Euro trades without a clear direction vs. the US Dollar.
- Stocks in Europe open Thursday’s session on the defensive.
- EUR/USD lacks direction around the 1.0540 zone on Thursday.
- The USD Index (DXY) faces some range bound trade near 106.50.
- Investors’ attention is expected to be on Fed’s Jerome Powell.
- Fedspeak, weekly Initial Jobless Claims and the Philly Fed index come next.
The Euro (EUR) is trading in a limited range against the US Dollar (USD), with EUR/USD hovering around 1.0540 following the opening bell in the old continent on Thursday.
On the other hand, the Greenback keeps the trade in the mid-106.00s when gauged by the USD Index (DXY) amidst the unabated march north in US yields across different maturities and rising prudence ahead of the speech by Chair Powell and the geopolitical effervescence.
Keeping the focus on monetary policy, investors presently expect the Federal Reserve (Fed) to maintain its posture of not making any interest rate changes for the rest of the year.
Meanwhile, financial market investors are considering the likelihood of the European Central Bank (ECB) stopping policy changes, despite inflation levels beyond the bank's objective and rising fears about the possibility of an economic slowdown or stagflation in the European zone.
Back to the domestic calendar, Business Confidence in France eased to 98 in October.
In the US docket, Chief Powell will discuss the “Economic Outlook” at the Economic Club of New York, while FOMC Philip Jefferson (permanent voter, centrist), Chicago Fed Austan Goolsbee (voter, centrist), Atlanta Fed Raphael Bostic (2024 voter, centrist), FOMC Michael Barr (permanent voter, centrist), and Philadelphia Fed Patrick Harker (voter, hawk) are all due to speak later in the North American session.
Additionally, the usual weekly Initial Jobless Claims are due seconded by the Philly Fed Manufacturing Index, the CB Leading Index, Existing Home Sales, and the Monthly Budget Statement.
Daily digest market movers: Euro alternates ups and downs around 1.0540
- The EUR trades in an irresolute tone vs. the USD.
- US and German yields extend their move higher.
- Markets are focused on the Fed's tightening-for-a-longer-period approach.
- Investors believe the ECB will hold off on tightening until Q32024.
- Geopolitical concerns in Middle East remain on the rise.
- Australian jobs report came in mixed in September.
- All the attention will be on Powell’s discussion later in the day.
Technical Analysis: Euro risks a deeper pullback once 1.0500 is cleared
The EUR/USD is trading indecisively around 1.0540 against the backdrop of the Greenback's lack of direction.
If the upward trend continues, EUR/USD may test the October high of 1.0639 (October 12), prior to the weekly top of 1.0736 (September 20) and the important 200-day SMA of 1.0819. A break above this level might indicate a push to break over the weekly peak of 1.0945 (August 30) and target the psychological threshold of 1.1000. Any more rises over the August high of 1.1064 (August 10) might push the pair towards the weekly top of 1.1149 (July 27) and perhaps the 2023 peak of 1.1275. (July 18).
If selling pressure returns, the 2023 low of 1.0448 (October 3) and the key support of 1.0400 may be revisited. If this level is breached, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 may be retested (November 21, 2022).
It is crucial to recall that the risk of sustained negative pressure persists as long as the EUR/USD 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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