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- EUR/USD exhibits strength ahead of Fed Powell’s speech
EUR/USD exhibits strength ahead of Fed Powell’s speech
- EUR/USD moves higher after correcting to near 1.1120 as the US Dollar struggles to extend recovery.
- Fed Powell’s speech will provide cues about November's likely interest rate cut size.
- The ECB could deliver a second consecutive interest rate cut in October.
EUR/USD edges slightly higher in Thursday’s European session after correcting to near 1.1120 on Wednesday. The major currency pair rebounds ahead of the US Federal Reserve (Fed) Chair Jerome Powell’s speech at 13:20 GMT. On Wednesday, the shared currency pair faced selling pressure after testing territory above the round-level resistance of 1.1200 as the US Dollar (USD) bounced back. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near Wednesday’s high around 101.00.
Along with Powell, seven other policymakers: Boston Fed Bank President Susan Collins, Fed Governor Adriana Kugler, Fed Governor Michelle Bowman, New York Fed Bank President John Williams, Fed Vice Chair for Supervision Michael Barr, Fed Governor Lisa Cook, and Minneapolis Fed Bank President Neel Kashkari are also lined up to speak during the New York session.
Fed policymakers are expected to provide cues about the likely interest rate action in the remainder of the year. Currently, markets expect that the Fed will reduce interest rates further by 75 basis points (bps) collectively in the remaining two meetings, according to the CME FedWatch tool. The tool also shows that the probability of the Fed announcing a second straight interest rate cut by 50 basis points (bps) in November has increased to 61% from 39% a week ago.
Meanwhile, the latest comments from Fed policymakers have indicated that they were concerned over deteriorating labor market conditions. Out of 12 members-led Federal Open Market Committee (FOMC), only Fed Governor Michelle Bowman supported beginning the rate-cut cycle gradually by a 25 bps rate cut in September.
To get cues about the current inflation status, investors will focus on the United States (US) core Personal Consumption Expenditures Price Index (PCE) data for August, which will be published on Friday. The underlying inflation data is estimated to have grown at a faster pace of 2.7% against the July print of 2.6%.
Daily digest market movers: EUR/USD rises despite uncertainty over Eurozone’s outlook
- EUR/USD rebounds to near 1.1150 as investors underpin the Euro (EUR) against the US Dollar (USD). The performance of the Euro against other major currencies is weak due to growing speculation that the European Central Bank (ECB) could cut the Rate on Deposit Facility for the second time in a row next month. This would be the third dovish decision by the ECB this year.
- On Tuesday, the comments from Dutch ECB governing council member Klaas Knot in an interview with the Dutch TV program Nieuwsuur indicated that the central bank will continue the policy-easing cycle to at least the first half of 2025 to a level between 2% and 3% saying, "I would expect us to continue to gradually reduce interest rates in the coming time, also in the first half of 2025."
- Market expectations for the ECB to reduce interest rates in October have been prompted by deepening concerns over the Eurozone’s activity growth. The Eurozone Composite PMI unexpectedly sank into contraction in September, as shown by the flash HCOB PMI report compiled with S&P Global.
- For fresh inflation status, investors will focus on the preliminary German Harmonized Index of Consumer Prices (HICP) data for September, which will be published on Monday. Signs of further slowdown in inflationary pressures would prompt market expectations of an ECB 50 bps interest rate cut, while hot figures would weaken them.
- Meanwhile, a survey from Growth From Knowledge (GFK) showed on Thursday that German Consumer Confidence improved to -21.2 in October against estimates of -21.5 and the former release of -21.9.
Technical Analysis: EUR/USD holds key 20-day EMA
EUR/USD rebounds slightly from 1.1120 in the European trading session on Thursday. The major currency pair corrected on Wednesday from the key resistance of 1.1200. The near-term outlook of the shared currency pair remains firm as it holds the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000.
The upward-sloping 20-day Exponential Moving Average (EMA) near 1.1100 suggests that the near-term trend is bullish.
The 14-day Relative Strength Index (RSI) consolidates below 60.00, 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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