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- Euro retreats from tops near 1.0700 on poor PMIs
Euro retreats from tops near 1.0700 on poor PMIs
- The Euro appears offered vs. the US Dollar.
- Stocks in Europe remain well on the defensive on Tuesday.
- EUR/USD’s upside bias faltered ahead of the 1.0700 region.
- The USD Index (DXY) rebounds from multi-week lows near 105.40.
- Consumer Confidence in Germany worsens in November.
- Germany, EMU PMIs remain in contraction territory.
- The ECB’s Christine Lagarde will speak later in the session.
- Advanced Manufacturing and Services PMIs are also due in the US.
The Euro (EUR) is now exhibiting a mild fragility against the US Dollar (USD), resulting in EUR/USD retreating to the 1.0650 region after earlier tops in levels just shy of 1.0700 the figure on Tuesday.
Simultaneously, the Greenback is managing to regain some equilibrium and rebound from earlier four-week lows in the 105.40 zone in terms of the USD Index (DXY) against the backdrop of the mixed performance in US yields and further improvement in the sentiment surrounding the risk-linked galaxy.
With regards to monetary policy, participants now foresee the Federal Reserve (Fed) maintaining its present stance of leaving rates unchanged at the November 1 event. This perspective was reinforced by remarks from Fed Chair Jerome Powell during his appearance at the Economic Club of New York last week.
Concurrently, investors are contemplating the potential of the European Central Bank (ECB) discontinuing its tightening cycle. This occurs in spite of inflation levels surpassing the bank's target and developing anxieties regarding the risk of an economic slowdown or stagflation in the euro zone's economy.
In the domestic calendar, Consumer Confidence in Germany tracked by GfK worsened to -28.1 for the month of November. Still in Germany, flash Manufacturing and Services PMI came in at 40.7 and 48.0, respectively, for the current month. In the broader euro area, those gauges came in at 43.0 and 47.8, respectively.
Across the pond, flash Manufacturing and Services PMIs for the current month are also in the pipeline.
Daily digest market movers: Euro surrenders initial gains on poor data
- The EUR gives away the initial advance vs. the USD on Tuesday.
- US and German yields trade mostly with losses early in Europe.
- Markets expect the Fed to extend its impasse in November.
- Investors see the ECB entering a pause in its tightening campaign.
- Geopolitical concerns in the Middle East appear somewhat diminished.
- UK jobs report surprised to the downside.
- RBA’s Bullock suggested inflation could hit the target later than estimated.
Technical Analysis: Euro shifts its attention to 1.0700 and above
EUR/USD runs out of steam near the key round level of 1.0700 on Tuesday.
If the bullish trend continues, EUR/USD may challenge the transitory hurdle at the 55-day SMA at 1.0702 prior to the weekly high of 1.0736 (September 20) and the important 200-day SMA of 1.0816. A break above this level might signal a push to the weekly top of 1.0945 (August 30), just ahead of the psychological mark of 1.1000. Any more gains might re-establish a challenge to the August peak of 1.1064 (August 10) before hitting the weekly high of 1.1149 (July 27) and possibly the 2023 top of 1.1275. (July 18).
If the selling trend resumes, there is immediate support around the weekly low of 1.0495 (October 13), which is just ahead of the 2023 low of 1.0448 (October 3), all before the round level of 1.0400. If this zone is breached, the pair could slip back to weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
It is critical to remember that 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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