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- EUR/USD awaits US data, ECB speakers
EUR/USD awaits US data, ECB speakers
- EUR/USD could see volatility on Thursday with US data and ECB speakers in the line up.
- US factory gate prices and Retails Sales could tone the debate on when the Fed cuts interest rates.
- In Europe, speakers from the ECB may shed light on when the ECB considers its own rate cut.
EUR/USD continues trading in the mid 1.0900s after pulling back from a peak at 1.0981 achieved last week. With data releases and events affecting both sides of the EUR/USD pair on Thursday, a cursory glance at the proverbial “crystal ball” suggests some volatility is probable.
In the US, factory gate inflation and Retail Sales data could tone expectations of when the Federal Reserve (Fed) will start cutting interest rates – a key driver for the US Dollar (USD).
In Europe, meanwhile, a string of rate-setters from the European Central Bank (ECB) are scheduled to speak with their comments likely to shed light on when the central bank will decide to start cutting its interest rates – a key driver for the Euro (EUR).
The takeaway is that if inflation is seen as stubborn, interest rates will stay high, supporting the currency in question.
EUR/USD Daily digest market movers: US data and Euro-speak
US core factory gate prices, Producer Prices ex Food and Energy (Core PPI), an important inflation metric, is scheduled for release at 12:30 GMT, with economists expecting a drop to 1.9% YoY registered in February from 2.0% in January.
On a month-on-month basis, Core PPI is forecast to show a 0.2% rise versus the 0.5% advance seen in the previous month.
The headline Producer Price Index (PPI) is forecast to show a 1.1% YoY gain versus 0.9% in January, and a 0.3% gain MoM, the same as previous.
Since the PPI informs base costs that feed into the Consumer Price Index (CPI), the data is an important leading indicator for CPI inflation. If retailers have to pay more for their goods wholesale, they will usually pass on the increase to consumers.
US Retail Sales, also out at 12:30 GMT, are forecast to rebound in February, registering a 0.8% rise against the 0.8% decline in January. Higher-than-expected sales tend to spur inflation with implications for interest rate policy and the USD.
ECB speakers to shed light on whether interest rates will fall in April or June
Dovish talk from ECB Governing Council (GC) big-hitter Francois Villeroy de Galhau on Monday suggested he was leaning in favor of April for a first interest-rate cut by the Frankfurt-based bank.
On Wednesday, Bank of Austria Governor and ECB Governing Council member Robert Holzmann, however, said he thought the bank was more likely to cut in June. The President of the ECB, Christine Lagarde, also said June was the time the ECB would review its policy on rates.
A list of speakers from the ECB on Thursday may shed further light on the debate:
At 9:30 GMT, the member of the ECB’s Executive Board Frank Elderson.
11:00 sees the member of the ECB’s Executive Board, Isabel Schnabel, talk.
Vice-President of the ECB Luis de Guindos is up at 18:00 GMT.
If more members appear to gravitate to June, which is the base case, it could have a slightly positive impact on the Euro and EUR/USD. If the De Galhau camp gains momentum, EUR/USD could weaken.
Technical Analysis: EUR/USD continues correction lower
EUR/USD is still mid-pullback after peaking at the 1.0981 March 8 high.
The correction lacks momentum and Wednesday’s up day adds evidence suggesting the pair is more likely pulling back within a dominant short-term uptrend rather than reversing that uptrend. As things stand, it’s likely to find a floor and resume its upside eventually.
Euro vs US Dollar: Daily chart
It is still possible the correction could fall lower before it completes. One possible zone where price could eventually find support is between 1.0898 (February 2 high) and the top of the Measured Move’s A wave at 1.0888.
A break below 1.0867 would be more critical and add credence to the case for a trend reversal, with bears taking more control.
On the other hand, a move above 1.0981 would provide confirmation of a higher high and an extension of the uptrend.
After that, tough resistance is expected at the 1.1000 psychological level, which is likely to be the scene of a fierce battle between bulls and bears.
A decisive break above 1.1000, however, would open the gates to further gains towards the key resistance level at 1.1139, the December 2023 high.
By “decisive” it is meant a break characterized by a long green candle piercing clearly above the level and closing near its high, or three green bars in a row, breaching the level.
Euro FAQs
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%).
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.
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.
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.
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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