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- EUR/USD grips gains slightly below 1.1100 ahead of Jackson Hole meeting
EUR/USD grips gains slightly below 1.1100 ahead of Jackson Hole meeting
- EUR/USD holds onto gains below 1.1100 due to weakness in the US Dollar.
- The US Dollar faces a sell-off amid firm Fed September rate-cut bets.
- ECB Rehn sees market expectations for rate cuts in September as appropriate.
EUR/USD trades close to a more than seven-month high slightly below the round-level resistance of 1.1100 in Tuesday’s European session. The major currency pair holds gains as the US Dollar (USD) continues to face a sheer sell-off, weighed by firm expectations that the Federal Reserve (Fed) will begin cutting interest rates in September.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a seven-month low at around 101.80.
Market speculation for Fed interest rate cuts has strengthened as officials seem to be more worried about the United States (US) labor market and remain confident that price pressures are on track to the 2% target.
On Monday, Minneapolis Fed Bank President Neel Kashkari cited concerns over signs of weakening labor market conditions and favored rate cuts in September. “The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” he said in an interview with The Wall Street Journal.
“If we saw some quicker deterioration in the labor market, then that would tell me, ‘well, we need to do more, quickly, to support the labor market, even if we have uncertainty about where our ultimate destination is going to be,” he added. However, Kashari pushed back expectations of the Fed’s jumbo rate cuts citing that layoffs remain low and higher jobless claims are not a sign of labor market deterioration.
For more cues on the interest rate path, investors will focus on the release of the Federal Open Market Committee (FOMC) minutes for the July meeting on Wednesday, and the Fed Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium, which will be held from August 22 to 24.
Daily digest market movers: EUR/USD sees more upside amid US Dollar’s weakness
- EUR/USD exhibits strength amid weakness in the US Dollar. The Euro outperforms the Greenback but is sluggish against other peers on expectations that the European Central Bank (ECB) could cut interest rates two more times this year. The ECB is widely anticipated to cut interest rates for the second time in its September meeting.
- This week, investors will focus on the preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data for August and Q2 Negotiated Wage Rates, which will be published on Thursday. Economists estimate that the Composite PMI barely improved amid the contraction in activities in the manufacturing sector. As for the Negotiated Wage Rate, a key measure of wage growth rose to 4.69% in the first quarter of this year and ECB officials would be pleased with a lower reading for the second quarter.
- The economic outlook of the Eurozone is vulnerable as its largest economy, Germany, struggles to maintain a firm footing due to poor demand from domestic and overseas markets. Amid downside risks to the Eurozone economic outlook, ECB policymaker and Finnish central bank chief Olli Rehn has shown comfort for market expectations pointing to rate cuts in September.
- In a speech to the European American Chamber of Commerce in New York, Rehn said: "The recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September, provided that disinflation is indeed on track," Reuters reported.
Technical Analysis: EUR/USD aims to recapture 1.1100
EUR/USD turns sideways after rising to a fresh seven-month high near the round-level resistance of 1.1100. The major currency pair strengthened after a breakout of a channel formation on a daily time frame. Upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs) near 1.0945 and 1.0880, respectively, suggest that the overall trend is bullish.
The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum.
The immediate resistance for the Euro bulls would be the 28 December 2023 high at 1.1140. On the downside, the August 15 low at 1.0950 will be a key support area.
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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