- The Euro keeps the bid bias intact against the US Dollar.
- Stocks in Europe en route to a negative close.
- EUR/USD’s rebound runs out of steam near 1.0600.
- The USD Index (DXY) maintains the trade in the low-106.00s.
- Markets continue to digest Fed Chairman Powell’s comments.
The Euro (EUR) now comes under some tepid downside pressure against the US Dollar (USD), forcing EUR/USD to retreat from earlier peaks just pips away from the key 1.0600 hurdle on Friday.
Meanwhile, the Greenback manages to regain some balance and reclaims the 106.30 zone when gauged by the USD Index (DXY) amidst the corrective knee-jerk in US yields across different time frames and some loss of momentum in the risk complex.
Keeping the focus on monetary policy, investors anticipate the Federal Reserve (Fed) to retain its current stance of not changing interest rates at the November meeting, a view that was reinforced by comments from Fed’s Jerome Powell on Thursday.
Meanwhile, financial market participants are pondering the potential of the European Central Bank (ECB) discontinuing policy measures, despite inflation levels beyond the bank’s target and growing concerns about the risk of a European zone economic slowdown or stagflation.
The European calendar will be empty at the end of the week.
No data releases scheduled across the ocean either, although investors are expected to follow speeches by Cleveland Fed President Loretta Mester (2024 voter, hawk) and Philadelphia Fed President Patrick Harker (voter, hawk).
Daily digest market movers: Euro looks well propped up by 1.0500
- The EUR now alternates gains with losses vs. the USD on Friday.
- US and German yields come under pressure and recede from peaks.
- Investors see the Fed keeping its interest rate unchanged in November.
- Atlanta Fed Raphael Bostic suggested the Fed could cut rates in late 2024.
- Philadelphia Fed Patrick Harker advocated for a pause in the Fed’s hiking cycle.
- Markets expect believe the ECB to enter an impasse in its tightening campaign.
- Geopolitical fears continue to dominate the broader landscape.
- Japanese inflation rate eased to 3.0% in September.
Technical Analysis: Euro could alleviate the selling pressure above 1.0770
The recovery in EUR/USD falters once again ahead of the key barrier at 1.0600 the figure on Friday.
If the bullish trend continues, EUR/USD may confront the October 12 high of 1.0639, before reaching the September 20 top of 1.0736 and the crucial 200-day Simple Moving Average (SMA) of 1.0817. A break above this level might signal a push to the August 30 peak of 1.0945 ahead of the psychological mark of 1.1000. Any more gains could put a potential test of the August 10 high of 1.1064 back on the radar prior to the July 27 top of 1.1149 and possibly the 2023 peak of 1.1275 seen on July 18.
If the selling bias returns, the 2023 low of 1.0448 from October 3 emerges as the immediate contention area ahead of the round level of 1.0400. If this region is breached, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
As long as the EUR/USD continues below the 200-day SMA, the possibility of continuous bearish pressure exists.
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.