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- Euro is steady at four-month highs on calm end-of-year trading
Euro is steady at four-month highs on calm end-of-year trading
- The Euro keeps crawling higher on risk appetite and a weak US Dollar.
- A softer US economic growth outlook and easing inflation pressures are boosting hopes of Fed cuts.
- In the absence of key data, risk appetite might buoy the Euro before key Eurozone figures are released.
The Euro (EUR) is trading with a mild bullish tone in Wednesday’s European session, following a long Christmas weekend. The pair is moving in the mid-range of 1.1000 with investors celebrating the end of the global tightening cycle, which is expected to support economic growth and lessen the risks of a deep recession next year.
Data released in the US last week revealed that inflation is ebbing fast. The Personal Consumption Expenditures (PCE) Prices Index, the Fed´s favorite inflation gauge, declined to its lowest reading in nearly three years.
Beyond that, third quarter US Gross Domestic Product was revised down to a 4.9% growth from the same period last year, which was lower than previous estimations of 5.2%.
These figures confirm the soft landing rhetoric of lower growth and receding inflation that fuels prospects that the US central bank will start cutting rates in early 2024. This is boosting investors’ appetite for risk and weighing the US Dollar across the board.
Daily digest market movers: Hopes of Fed cuts are hammering the US Dollar
- The Euro remains steady at four-month highs as the Dollar keeps heading south on hopes of Fed cuts.
- Last week, the US PCE Price Index declined to 2.6% year-on-year from the downwardly revised 2.9% in October.
- The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, showed a milder decline, to 3.2% from 3.4% in October. Still, it was lower than the 3.3% expected and well below the 5.6% peak seen in April 2022.
- The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, is seen growing steadily at 0.2% and down to 3.3% from 3.5% in the year.
- These figures have cemented investors’ hopes of Fed rate cuts in early 2024. Futures markets are pricing more than 70% chances of a quarter-point rate cut in March and 150 bps cuts in 2024, according to the CME Group FedWatch Tool.
- US Treasury yields remain declining, with the benchmark 10 yield at 3.85%, more than 100 pips below the 5% peak reached in late October. This is adding negative pressure on the US Dollar.
- The calendar is light this week and the positive mood might support the Euro before the focus turns to key Eurozone macroeconomic releases.
Technical Analysis: Euro remains buoyed with 1.1065 and 1.1100 in sight
The Euro is trading with a moderately positive tone during a calm trading session on Wednesday. The pair remains supported above the 1.1000 level, with technical indicators pointing higher.
The US Dollar Index remains depressed below a strong resistance area at 101.80, and pushing towards multi-month lows at 101.40. A successful move below here would give a fresh boost to the Euro.
The technical picture, as mentioned earlier remains positive, with price action well above the main SMAs and oscillators still below overbought levels, suggesting the possibility of further appreciation.
Immediate resistance levels lie at 1.1065, which closes the path towards the 78.6% Fibonacci retracement of the third quarter´s sell-off, in the vicinity of 1.1100 and the July 27 high, at 1.1145.
Supports are the mentioned 1.1000 and 1.0930.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.25% | -0.05% | -0.50% | -0.51% | 0.07% | -0.46% | -0.48% | |
| EUR | 0.35% | 0.23% | -0.12% | -0.19% | 0.36% | -0.10% | -0.13% | |
| GBP | 0.17% | -0.29% | -0.19% | -0.46% | 0.09% | -0.24% | -0.55% | |
| CAD | 0.52% | -0.06% | 0.41% | -0.25% | 0.59% | 0.22% | -0.11% | |
| AUD | 0.51% | 0.19% | 0.48% | 0.01% | 0.56% | 0.12% | -0.15% | |
| JPY | -0.07% | -0.30% | -0.30% | -0.29% | -0.55% | -0.33% | -0.69% | |
| NZD | 0.46% | 0.15% | 0.43% | -0.04% | -0.09% | 0.46% | 0.04% | |
| CHF | 0.66% | 0.11% | 0.27% | 0.13% | 0.21% | 0.69% | 0.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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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