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- EUR/USD rises as traders brace for crucial data this week for both Eurozone, US
EUR/USD rises as traders brace for crucial data this week for both Eurozone, US
- EUR/USD moves higher as investors focus on a slew of economic data from both the US and the Eurozone.
- The German economy is expected to have contracted by 0.3% in the third quarter on an annual basis, while the Eurozone as a whole is seen growing by 0.8% YoY.
- Risk-aversion could stay afloat amid uncertainty over the US presidential election.
EUR/USD rises slightly above 1.0800 in European trading hours on Monday. The major currency pair broadly remains sideways ahead of a data-packed week in which traders will get economic growth and inflation data for both the United States (US) and the Eurozone, two key metrics that usually determine the path of interest rates, a crucial driver for currencies.
In the Eurozone, investors are likely to pay closer attention to the economic growth data because inflation is expected to remain near the European Central Bank’s (ECB) target of 2%. Economists expect the Eurozone economy to have grown by 0.8% on year, higher than the 0.6% expansion seen in the second quarter. When compared with 2Q 2024, economists expect the Eurozone to have grown by 0.2% in Q3, the same pace as the previous quarter.
A major contribution to the Eurozone economy is expected to have come from Spain and other economies as the economy of its largest nation, Germany, is forecasted to have declined by 0.3% in Q3 compared with the same quarter a year earlier.
At the sidelines of the International Monetary Fund (IMF) meeting last week, ECB policymaker and President of the Deutsche Bundesbank Joachim Nagel emphasized the need to implement the growth package, which has already been announced by the German government, to prevent the economy from getting worse.
"This would make an important contribution to strengthening the forces of growth. But anything that could go beyond that in 2025 would certainly be welcome from the central bank point of view," Nagel said, Reuters reported.
On the interest rate outlook, Nagel said: “We shouldn’t be too hasty,” adding that the decision in December will be based on a slew of indicators such as the US presidential election outcome and inflation data. His comments came after a few ECB officials had supported a larger-than-usual 50-basis points (bps) interest rate cut in December.
Daily digest market movers: EUR/USD gains as US Dollar falls back
- EUR/USD gains in Monday’s European session as the US Dollar retreats after revisiting an almost three-month high. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back from 104.60. However, the outlook of the US Dollar remains firm as investors are expected to stay risk-averse with the United States (US) presidential election just a week away.
- Central bankers, in various discussion panels at the sidelines of the IMF meeting last week, discussed possible consequences of former US President Donald Trump winning against current Vice President Kamala Harris. Traders seem to be taking this scenario as a positive for the US Dollar as Trump vowed to hike tariffs by 10% on all economies, except for China, which would face even higher tariffs of 60%.
- Apart from the uncertainty over the US election, the US Dollar will also be guided by a string of US data to be published this week. Market participants will mainly focus on the JOLTS Job Openings and the Nonfarm Payrolls (NFP) data to get cues about job demand, and the Q3 GDP data for the current status of economic health.
Technical Analysis: EUR/USD holds above 1.0750
EUR/USD continues to hold above the upward-sloping trendline near 1.0750, which is plotted from the October 3, 2023, low at around 1.0450 on the daily time frame. However, the outlook of the major currency pair remains downbeat as it stays below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.
The downside move in the shared currency pair started after a breakdown of a Double Top formation on the daily time frame near the September 11 low at around 1.1000, which resulted in a bearish reversal.
The 14-day Relative Strength Index (RSI) remains in the 20.00-40.00 range, indicating a strong bearish momentum.
On the downside, the major pair could see more weakness towards the round-level support of 1.0700 if it slips below 1.0750. Meanwhile, the 200-day EMA near 1.0900, and the psychological figure of 1.1000 emerge as key resistances.
Euro FAQs
The Euro is the currency for the 19 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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