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- EUR/USD retreats from Monday’s peak with Greenback on road to recovery
EUR/USD retreats from Monday’s peak with Greenback on road to recovery
- EUR/USD eases on Tuesday after it briefly peaked above 1.10 on Monday.
- Markets are digesting Monday’s market rout after the Japanese indices meltdown.
- Monthly Germany’s Factory Orders unexpectedly surged 3.9% in June.
EUR/USD eases below 1.0950 on Tuesday after it added another tranche of gains at the beginning of the week to its stellar move following the poor US Nonfarm Payrolls (NFP) report on Friday. Markets were spooked by recession fears, sparking an equity crisis in Asia where the two major Japanese indices, the Nikkei and the Topix, lost over 10% of value in just one trading day. Markets are recovering on Tuesday, with the US Dollar (USD) gaining against its peers and recovering most of the incurred losses from Monday.
The EUR/USD correction on Tuesday does not look to be very big or quick. Germany’s June Factory Orders data underpins the Euro (EUR) after a stellar performance. Expectations were for a very mild 0.8% month-over-month increase in June after a decline of 1.6% in May. The data exceeded expectations by coming in at a positive 3.9%.
Overnight, President of the Federal Reserve Bank of Chicago Austan Goolsbee and San Francisco Federal Reserve President Mary Daly calm traders' nerves in the market. Both US Federal Reserve (Fed) officials said that a few softer numbers are no reason for concern and that the job market is still holding strong, with no substantial and widespread permanent layoffs taking place. Recession fears may have eased for now, though markets are starting to get afraid that the Fed has overpromised on rate cuts and might underdeliver when the moment is there to act.
Daily digest market movers: EUR/USD softening a touch
- On Tuesday, the Asian session started off quite quickly, with Japan’s Nikkei and Topix equity indices hitting their circuit breakers. This time, this was due to substantial moves to the upside, in contrast to their sharp declines earlier this week.
- The US Dollar sees some strength across the board, with the USD/JPY pair being the biggest outlier. The US Dollar (USD) outperforms the Japanese Yen (JPY) by over 1% on Tuesday.
- On the US political front, current Vice President Kamala Harris was officially nominated as the Democratic candidate for the upcoming Us presidential elections in November.
- On the old continent, German Factory Orders data for June were an upbeat surprise, increasing by 3.9% month-over-month after the -1.6% registered in May. Additionally, there were some lighter but still positive numbers for the German Construction Purchase Managers Index (PMI) for July, which ticked up from 39.7 to 40.0. Despite the uptick, the PMI number remains stuck in contraction.
- France’s private sector payrolls were unchanged in the second quarter. The preliminary number came in at 0.0% against 0.3% for the final reading of the first quarter.
Economic Indicator
Goods and Services Trade Balance
The Goods and Services Trade Balance released by the Bureau of Economic Analysis and the US Census Bureau is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the USD.<
Read more.Next release: Tue Aug 06, 2024 12:30
Frequency: Monthly
Consensus: $-72.4B
Previous: $-75.1B
Source: US Census Bureau
Technical Analysis: EUR/USD cooling down in search of support
EUR/USD is retreating after sellers came in hard on Monday once the pair briefly popped above 1.10. With that firm rejection at the psychological level and with the price action now falling back below that red descending trend line, it looks like EUR/USD will need to find support in order to regain strength for the next leg higher. As the Relative Strength Index (RSI) indicator is nearly overbought, it makes sense to let it ease back first before a possible next rally can spark.
On the upside, three stages can be recognised. First up is the 1.1017 area, where sellers came in hard on Monday. Should EUR/USD be able to rally above there, another leg higher to December’s peak at 1.1139 comes into focus. A surprise move towards 1.1275 could unfold if the Fed is forced to make a surprise emergency rate cut in case markets get out of control again for several days in a row.
Looking for support, the round level of 1.09 is an ideal candidate. In case the US Dollar gains momentum, the belt of moving averages in the 1.08 region is the next area to watch. Certainly, the 200-day Simple Moving Average (SMA) at 1.0830 looks very appealing, givenits importance in previous periods.
EUR/USD: Daily Chart
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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