EUR/USD recovers mildly to near 1.1120 in Friday’s European session after correcting from a fresh year-to-date high of 1.1174 on Thursday. The major currency pair edges higher as the US Dollar (USD) resumes its recent weakness after a decent recovery move a day earlier, amid caution ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops to near 101.30 after recovering from a more-than-seven-month low of 101.00 to nearly 101.60 on Thursday. The US Dollar bounced back strongly after the flash US S&P Global PMI report for August showed that the Composite PMI came in better than estimated at 54.1. Overall, the report showed that business activity was boosted by a robust expansion in the services sector, while the manufacturing part of the economy contracted at a faster-than-expected pace.
In his speech at the JH Symposium – scheduled at 14:00 GMT – Jerome Powell is expected to provide cues on interest rates and the United States (US) economic outlook. Market participants are keen to know the size of interest rate cuts in the September meeting, given that a “vast majority” of officials said that "if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to Federal Open Market Committee (FOMC) minutes of July 30-31 policy meeting.
Investors also consider the chances of the US economy to achieve a “soft landing”, knowing that price pressures are on track to return to the desired rate of 2%. Fears of a potential US recession escalated after the Nonfarm Payrolls (NFP) report for July indicated a sharp slowdown in the labor demand and an increase in the Unemployment Rate to 4.3%, the highest level seen since November 2021.
Analysts don’t expect Jerome Powell to provide a preset interest rate path. However, he may call rate cuts in September as appropriate, given that risks have now expanded to both aspects of dual mandate (inflation and employment).
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
EUR | USD | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
EUR | 0.09% | -0.08% | -0.36% | -0.08% | -0.17% | -0.13% | 0.19% | |
USD | -0.09% | -0.17% | -0.44% | -0.16% | -0.25% | -0.45% | 0.11% | |
GBP | 0.08% | 0.17% | -0.27% | 0.02% | -0.09% | -0.03% | 0.03% | |
JPY | 0.36% | 0.44% | 0.27% | 0.25% | 0.17% | 0.20% | 0.31% | |
CAD | 0.08% | 0.16% | -0.02% | -0.25% | -0.09% | -0.04% | 0.04% | |
AUD | 0.17% | 0.25% | 0.09% | -0.17% | 0.09% | 0.05% | 0.11% | |
NZD | 0.13% | 0.45% | 0.03% | -0.20% | 0.04% | -0.05% | 0.06% | |
CHF | -0.19% | -0.11% | -0.03% | -0.31% | -0.04% | -0.11% | -0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
EUR/USD holds above the round-level support of 1.1100, with investors focusing on Fed Powell’s speech at the JH Symposium. The outlook of the shared currency pair has remained upbeat after a breakout of a channel formation on a daily time frame. All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend.
The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, touching overbought levels but still suggesting a strong upside momentum.
In case of a decisive break above the December 28, 2023, high at 1.1140, Euro bulls could aim to recapture round-level resistance of 1.1200. On the downside, the round-level figure of 1.1100 acts as a major support zone.
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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