- The Euro adds to Thursday’s gains vs. the US Dollar.
- European stocks trade in a mixed tone so far on Friday.
- US Nonfarm Payrolls will be the salient event later in the session.
The Euro (EUR) preserves its positively robust sentiment in the latter half of the week against the US Dollar (USD), motivating EUR/USD to revisit the 1.0650 region prior to the release of the US labour market report on Friday.
On the opposite side, the Greenback encounters extra downward strain and compels the USD Index (DXY) to pierce the 106.00 support amidst a broadly based amelioration in risk appetite. The persistent weakening of the Greenback coincides with some tepid recovery in US yields across different maturities.
In the context of monetary policy, there is a growing agreement among market participants that the Federal Reserve (Fed) is likely to maintain its current monetary conditions unchanged for the time being, as the possibility of a rate adjustment in December seems to have lost some traction particularly in the wake of the latest FOMC event.
The same can be said from the European Central Bank (ECB), as investors now favour a protracted impasse of its monetary policy, most likely until the second half of the next year.
In the euro docket, Germany’s trade surplus narrowed to €16.5B in September and the Unemployment Rate in the broader euro area ticked higher to 6.5% in the same month.
Across the pond, the publication of Nonfarm Payrolls for the month of October will take centre stage along with the Unemployment Rate and the ISM Services PMI.
Daily digest market movers: Euro maintains the optimism above 1.0600
- The EUR trades with decent gains vs. the USD.
- US and German yields look poised to rebound so far.
- A 25 bps rate hike by the Fed in December appears not favoured now.
- The ECB is seen keeping its pause until H2 2024.
- Geopolitical concerns in the Middle East remain unabated.
- Chinese Caixin Services PMI improved a tad in October.
Technical Analysis: Euro faces the next up-barrier near 1.0700
EUR/USD extends the positive price action further north of the 1.0600 hurdle on Thursday.
Next on the upside for EUR/USD comes the October peak of 1.0694 (October 24). The breakout of this level exposes the weekly top of 1.0767 (September 12) ahead of the crucial 200-day SMA at 1.0805, while another weekly peak of 1.0945 (August 30) comes before the psychological barrier of 1.1000. Beyond this region, the pair may encounter resistance at the August high of 1.1064 (August 10), ahead of the weekly top of 1.1149 (July 27) and the 2023 peak of 1.1275 (July 18).
On the flip side, sellers are expected to meet the next contention at the weekly low of 1.0495 (October 13), prior to 2023 bottom at 1.0448 (October 15), and the round number of 1.0400.
In the meantime, the pair’s outlook is predicted to continue bearish as long as it remains below the crucial 200-day SMA.
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.