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- Euro falls below 1.0700 as investors focus on upcoming Fed speeches
Euro falls below 1.0700 as investors focus on upcoming Fed speeches
- The Euro looks offered against the US Dollar.
- European markets open Tuesday’s session in a mixed tone.
- Germany Industrial Production surprised to the downside.
The Euro (EUR) adds to Monday’s decline against the US Dollar (USD), motivating EUR/USD to retreat to the area below 1.0700 on Tuesday.
The Greenback manages to regain further balance and lifts the USD Index (DXY) to the mid-105.00s against the backdrop of renewed weakness in risk appetite, particularly in response to weaker trade results in China. The move lower in the pair is also accompanied by a knee-jerk in both US and German yields.
Regarding monetary policy, markets expect the Federal Reserve (Fed) to keep policy unchanged. The potential for an interest-rate hike in December appears to have lost momentum, particularly after the latest FOMC gathering and Friday's publication of weaker-than-anticipated Nonfarm Payrolls data for October.
As for the European Central Bank (ECB), investors also favour an extended pause of its rate-hiking cycle, most probably until the second half of the year.
On the economic calendar, German Industrial Production contracted more than estimated at a monthly 1.4% in September and 3.7% vs. the same month of 2022. In addition, German Construction PMI receded to 38.3 in October. Looking at the broader eurozone, the Construction PMI ticked lower to 42.7 during last month and Producer Prices are due at 10:00 GMT.
Across the Atlantic, Balance of Trade results for September are due at 13:30 GMT, prior to the IBD/TIPP Economic Optimism index and Consumer Credit Change.
Additionally, market participants are expected to closely follow speeches by FOMC Governor Michael Barr (permanent voter, centrist), FOMC Governor Christopher Waller (permanent voter, hawk), NY Fed President John Williams (permanent voter, centrist), Dallas Fed President Lorie Logan (voter, hawk), Minneapolis Fed President Neel Kashkari (voter, centrist) and Chicago Fed President Austan Goolsbee (voter, centrist).
Daily digest market movers: Euro loses traction as risk appetite fades
- The EUR puts the 1.0700 mark to the test against the USD.
- US and German yields trade slightly on the defensive.
- The Fed is seen keeping its monetary policy unchanged in December.
- The ECB is likely to keep its rates unchanged until H2 2024.
- The Middle East conflict looks everything but abated.
- The RBA raised its OCR by 25 bps, as widely expected.
- Chinese trade balance figures disappoint in October.
Technical Analysis: Euro faces immediate hurdle around 1.0800
EUR/USD corrects lower and revisits the sub-1.0700 zone on Tuesday.
The November peak of 1.0754 (November 6) follows next on the upswing for EUR/USD, seconded by the crucial 200-day Simple Moving Average (SMA) at 1.0805 and another weekly top of 1.0945 (August 30) before the psychological barrier of 1.1000. Beyond this zone, the pair may encounter resistance at the August high of 1.1064 (August 10), ahead of the weekly peak of 1.1149 (July 27) and the 2023 high of 1.1275 (July 18).
Sellers, on the other hand, are anticipated to face support at the weekly low of 1.0495 (October 13), before approaching the 2023 bottom at 1.0448 (October 15) and the round number of 1.0400.
The pair's outlook is predicted to remain bearish as long as it 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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