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- Euro drops to fresh lows near 1.0530 ahead of ECB, Lagarde
Euro drops to fresh lows near 1.0530 ahead of ECB, Lagarde
- The Euro remains on the defensive vs. the US Dollar.
- Stocks in Europe open with marked losses on Thursday.
- EUR/USD deflates to weekly lows near 1.0530.
- The USD Index (DXY) extends the upside and approaches 107.00.
Currently, the Euro (EUR) is extending its vulnerability against the US Dollar (USD), resulting in EUR/USD shedding further ground to weekly lows around 1.0540 following the opening bell in the old continent on Thursday.
In the meantime, the Greenback is in the process of regaining further balance after extra gains on Wednesday, leading the USD Index (DXY) to the proximity of the key hurdle at 107.00 the figure. The so-far daily advance in the Dollar appears once again bolstered by higher US yields in the belly and the long end of the curve.
In the realm of monetary policy, there is a growing consensus among market participants that the Federal Reserve (Fed) will maintain its current stance of keeping interest rates unchanged at the meeting on November 1. This view has been reinforced by remarks made by Fed Chair Jerome Powell in his recent speech at the Economic Club of New York (October 19).
Meanwhile, investors are contemplating the possibility of the European Central Bank (ECB) discontinuing its policy of tightening, even though inflation levels have exceeded the bank's target and concerns are emerging regarding the risk of an economic slowdown or stagflation in the Eurozone. On this, the ECB is widely anticipated to leave its interest rates unchanged at its meeting later in the session.
Data-wise, in the US, the flash Q3 GDP Growth Rate will be at the centre of the debate, seconded by weekly Initial Jobless Claims, Pending Home Sales, Durable Goods Orders and preliminary Goods Trade Balance.
Daily digest market movers: Euro loses the grip and retargets 1.0500
- The EUR’s decline picks up extra pace vs. the USD on Thursday.
- US and German yields trade in a mixed fashion early in the European session.
- A 25 bps rate hike by the Fed remains on the table at the December event.
- The ECB is seen entering a (protracted?) pause at its meeting on Thursday.
- Geopolitical concerns in the Middle East remain steady.
- The move above 150.00 in USD/JPY reignites intervention talk.
- Investors’ attention will also be on Lagarde’s press conference.
- US GDP figures are expected to show further resilience of the economy.
Technical Analysis: Euro still risks a deeper pullback near term
EUR/USD extends the bearish note to fresh weekly lows and shifts its attention to a potential visit to the 1.0500 neighbourhood.
If the selling trend continues, immediate support may be located near the weekly low of 1.0495 (October 13), followed by the 2023 low of 1.0448 (October 3) before hitting the round level of 1.0400. If this zone is crossed, the pair may continue to fall towards the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
If bulls retake control, EUR/USD will find initial resistance around the October top of 1.0694 (October 25), which looks underpinned by the vicinity of the temporary 55-day SMA. The breakout of this zone reveals the weekly high of 1.0767 (September 12), which precedes the significant 200-day SMA at 1.0813. Once this level is cleared, it might signal a further push towards the weekly peaks of 1.0945 (August 30), prior to the psychological milestone of 1.1000. If the rising trend continues, the August peak of 1.1064 (August 10) might be challenged, seconded by the weekly high of 1.1149 (July 27), and possibly even the 2023 top of 1.1275 (July 18).
It is vital to note that as long as the EUR/USD continues below the 200-day SMA, the pair may face persistent negative 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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