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- Euro looks offered near 1.0830 ahead of key US data
Euro looks offered near 1.0830 ahead of key US data
- The Euro remains on the defensive against the US Dollar.
- European stocks trade with decent gains across the board.
- US ISM Services PMI takes centre stage in the docket.
The Euro (EUR) continues to face downward pressure against the US Dollar (USD), prompting EUR/USD to revisit the proximity of the 1.0800 region, where some decent contention seems to have emerged so far on Tuesday.
In contrast, the Greenback shows slight strength around 103.70 as per the USD Index (DXY), adding to the promising start of the week.
In terms of the wider economic context, the current stance on monetary policy remains unchanged, with investors contemplating potential interest rate cuts from both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
In the domestic docket, final Services PMI in Germany and the broader Eurozone surpassed the preliminary prints at 49.6 and 48.7, respectively, for the month of November.
Across the Atlantic, final S&P Global Services PMI is due in the first turn seconded by the key ISM Services PMI and the RCM/TIPP Economic Optimism Index.
Daily digest market movers: Euro puts the 1.0800 region to the test
- The EUR extends the bearish tone against the USD.
- US and German yields trade without a clear direction.
- Speculations of rate cuts by the Fed in March remain on the rise.
- Investors see the ECB trimming its interest rates in Q2 2024.
- The RBA left its policy rate unchanged, as expected.
Technical Analysis: Euro risks a deeper drop below 1.0800
EUR/USD faces further selling pressure and recedes to the 1.0800 neighbourhood.
If the EUR/USD continues to fall, it may come into contact with the key 200-day SMA around 1.0818 as a first point of support. The 55-day SMA around 1.0682 is expected to provide brief support in the case of a breach. If this level is also broken, the weekly low of 1.0495 (October 13) will be revealed, followed by the 2023 low of 1.0448 (October 3) and the psychological threshold of 1.0400.
If the EUR/USD continues to fall, it may encounter the initial point of support at the December low of 1.0804 (December 4,5). In the case of a breach, the 55-day SMA around 1.0684 is expected to provide temporary support ahead of the weekly low of 1.0495 (October 13), seconded by the 2023 low of 1.0448 (October 3) and the round milestone of 1.0400.
Meanwhile, the pair is expected to retain its positive view while keeping above the 200-day SMA, today at 1.0820.
Euro FAQs
What is the Euro?
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%).
What is the ECB and how does it impact the Euro?
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.
How does inflation data impact the value of the Euro?
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.
How does economic data influence the value of the Euro?
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.
How does the Trade Balance impact the Euro?
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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