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- EUR/USD consolidates ahead of flash Eurozone-US Q3 GDP, German inflation
EUR/USD consolidates ahead of flash Eurozone-US Q3 GDP, German inflation
- EUR/USD stays sideways around 1.0800 ahead of key economic data releases from both the Eurozone and the US.
- The French economy rose by 0.4%, as expected, in the third quarter of the year.
- Trump’s victory in the US presidential election could have an adverse impact on the Eurozone growth.
EUR/USD trades close to Tuesday’s high slightly above 1.0800 in Wednesday’s European session. The major currency pair remains sideways for a third consecutive day as investors await key macroeconomic data from both the Eurozone and the United States (US) that is likely to inject volatility into the pair.
In Europe, the October preliminary Harmonized Index of Consumer Prices (HICP) data from Germany and six of its states, and from Spain will indicate whether inflationary pressures continue to remain within the European Central Bank’s (ECB) target of 2%.
Economists estimate the German HICP to have grown at a faster pace of 2.1% from 1.8% in September, while inflation in Spain is expected to have remained below 2%.
Unless there is a big upside surprise, the impact of the inflation data is expected to be less significant on the ECB’s interest rate action in its upcoming policy meeting in December as officials see price pressures softening faster than what the central bank had anticipated.
Recent commentaries from ECB policymakers have indicated that they are worried about inflation remaining persistently lower due to weakening economic growth. Market participants are worried about the outlook of the Eurozone economy.
Meanwhile, uncertainty ahead of the US presidential election persists. While national polls have indicated tight competition between former US President Donald Trump and current Vice President Kamala Harris, traders seem to be pricing in a Trump victory, which would have deep repercussions also for the Eurozone.
Trump has promised a universal 10% tariff on all imports, except those from China, which would face even bigger tariffs. The threat of tariffs could impact the Eurozone’s powerful export sector significantly. Investment banking firm Goldman Sachs projects a 1% drop in the Eurozone’s Gross Domestic Product (GDP) if a universal 10% tariff is imposed.
In Wednesday’s session, investors will also focus on the flash Q3 GDP data of the Eurozone and its major regions. Market participants will pay close attention to German growth numbers as the region’s largest economy is forecasted to contract for the second quarter in a row.
Meanwhile, the preliminary French Q3 GDP grew at an expected pace of 0.4%, faster than 0.2% in the second quarter of this year.
Daily digest market movers: EUR/USD stays on sidelines as US Dollar rally stalls
- EUR/USD remains sideways as the rally in the US Dollar (USD) appears to have stalled. The USD faces pressure after weak United States (US) JOLTS Job Openings data for September has renewed fears of pain in the labor market. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, drops to near 104.20.
- Tuesday’s Job Openings data showed fresh vacancies stood at 7.443 million, lower than estimates of 7.99 million and the prior release of 7.861 million. Weak job openings pointed to a slower labor demand, which kept Federal Reserve (Fed) dovish bets for the remaining year afloat. According to an October 23-29 Reuters poll, the Fed will cut interest rates by 25 basis points (bps) in policy meetings in November and December.
- For more interest rate cues, investors will focus on the ADP Employment Change and the flash US Q3 GDP data, which will be published in the North American session. Economists expect the private sector to have added 115K new workers in October, lower than 143K in September. Meanwhile, the US economy is expected to have grown at a steady pace of 3.0% on an annualized basis.
- Later this week, investors will keep an eye on the Nonfarm Payrolls and the ISM Manufacturing PMI data for October, and the Personal Consumption Expenditure Price Index (PCE) data for September.
Technical Analysis: EUR/USD stays within tight range around 1.0800
EUR/USD consolidates around 1.0800 in European trading hours on Wednesday. The shared currency pair 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 broader outlook of the major currency pair remains bearish 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, pointing to more downside ahead.
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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