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- Euro retreats from earlier highs near 1.1020, looks at German CPI, US GDP
Euro retreats from earlier highs near 1.1020, looks at German CPI, US GDP
- The Euro fades the initial uptick above 1.1000 against the US Dollar.
- European stocks open Wednesday’s session with decent gains.
- Flash Germany’s CPI, advanced US Q3 GDP Growth Rate next on tap.
The Euro could not sustain another bout of strength past the 1.1000 mark against the US Dollar on Wednesday, prompting EUR/USD to recede to the 1.0990 region in the wake of the opening bell in Europe.
On the flip side, the Greenback remains under pressure and trades without a clear direction around 102.70, managing to bounce off earlier lows in the 102.50-102.45 band when measured by the USD Index (DXY).
The current monetary policy landscape remains unchanged, with investors incorporating the possibility of future interest rate cuts by both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
On the euro docket, the focus of attention will be on the release of the flash Inflation Rate in Germany for the month of November.
Across the pond, the advanced Q3 GDP Growth Rate will take centre stage along with preliminary Goods Trade Balance figures and the usual Mortgage Applications tracked by MBA, while the release of the Fed’s Beige Book will close the calendar later in the NA session.
In addition, Cleveland Fed Loretta Mester (2024 voter, hawk) is also due to speak.
Daily digest market movers: Euro challenges the 1.1000 region once again
- The EUR alternates gains with losses against the USD.
- US and German yields extend their march south midweek.
- Investors contemplate the Fed reducing its interest rates in Q2 2024.
- Markets expectations place the ECB cutting rates in H2 2024.
- ECB’s Luis De Guindos said banks are delaying passing higher rates to savers.
- BoJ’s Seiji Adachi said a positive wage-inflation cycle is needed to change stance.
Technical Analysis: Euro now looks at 1.1064
Further upside momentum lifts EUR/USD to new monthly highs near 1.1020 on Wednesday.
The November high of 1.1017 (November 29) is now the EUR/USD’s immediate target, followed by the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all of which precede the 2023 high of 1.1275. (July 18).
Meanwhile, any corrective declines should find first support around the crucial 200-day SMA at 1.0814, followed by the temporary 55-day SMA at 1.0671. The weekly low of 1.0495 (October 13) follows next, seconded by the 2023 low of 1.0448 (October 3).
Meanwhile, the bullish outlook for the pair remains unchanged as long as it trades above 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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