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- EUR/USD moves higher to 1.1200 as upbeat market mood weighs on US Dollar
EUR/USD moves higher to 1.1200 as upbeat market mood weighs on US Dollar
- EUR/USD rises to near 1.1200 as the Euro gains despite deepening worries over Eurozone economic growth.
- The ECB is expected to cut interest rates once in any of the remaining two policy meetings this year.
- The next major trigger for the US Dollar will be the US core PCE inflation data for August on Friday.
EUR/USD extends its upside to near the yearly high of 1.1200 in Wednesday’s European session. The major currency pair gains as the US Dollar (USD) remains under pressure amid an improvement in investors’ risk appetite due to China’s massive stimulus plans announcement on Tuesday in an attempt to revive their economy from growing slowdown risks. Generally, investment flows to the US Dollar get reduced in times of cheerful market sentiment.
Apart from China’s massive stimulus, increasing Federal Reserve (Fed) large rate cut bets in November has also kept the US Dollar on the back foot. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges higher on Wednesday but remains close to the yearly low of 100.20.
The CME FedWatch tool shows that the likelihood of the Fed reducing interest rates by 50 basis points (bps) to the range of 4.25%-4.50% has increased to 60% from 37% a week ago. The Fed also started the policy-easing cycle on September 18 with a larger-than-usual rate cut of 50 bps as officials were concerned over declining labor demand.
This week, the major trigger for the US Dollar will be the United States (US) core Personal Consumption Expenditures Price Index (PCE) data for August, the Fed’s preferred inflation gauge, which will be published on Friday. The underlying inflation measure is estimated to have accelerated to 2.7% from 2.6% in July.
Before the Fed’s preferred inflation gauge, investors will focus on the US Durable Goods Orders for August, which will be published on Thursday. New Orders for Durable Goods are expected to have declined by 2.6% against a robust growth of 9.8% in July.
Daily digest market movers: EUR/USD rises as Euro performs strongly
- EUR/USD gains further to near 1.1200 in European trading hours as the Euro (EUR) performs strongly against its major peers despite growing concerns over Eurozone economic growth. Flash HCOB Composite Purchasing Managers Index (PMI), compiled by S&P Global and Hamburg Commercial Bank (HCOB) and released on Monday, unexpectedly contracted to 48.9 in September, the lowest level since January.
- The major decline in overall business activity came from a deeper contraction in activities in the manufacturing sector in the Eurozone’s major economies. German HCOB Manufacturing PMI came in at its lowest since September 2023 at 40.3, extending its contraction for 27 months in a row. Meanwhile, the French HCOB Composite PMI also returned to the contraction phase after expanding in August due to the one-off Olympic event.
- Going forward, the Euro will be guided by market expectations for European Central Bank (ECB) interest rate cut prospects for the rest of the year. The ECB is expected to deliver one interest rate cut in any of its two meetings remaining this year.
Technical Analysis: EUR/USD rises further to near 1.1200
EUR/USD rises to near the key resistance of 1.1200 and aims to capture it in the European trading session on Wednesday. The major currency pair delivers a sharp recovery after finding strong buying interest near the 20-day Exponential Moving Average (EMA), which trades around 1.1100.
The outlook of the major currency pair would remain firm till it holds the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000.
The 14-day Relative Strength Index (RSI) moves lower to 55.00, suggesting momentum is weakening.
Looking up, a decisive break above the round-level resistance of 1.1200 will result in further appreciation toward the July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.
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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