Euro bounces off lows near 1.0490 ahead of key data
- The Euro manages to pick some traction vs. the US Dollar.
- Stocks in Europe open Thursday’s session mostly with gains.
- EUR/USD drops to new multi-month lows near 1.0490.
- The USD Index (DXY) gives away some gains following new YTD peaks.
- Flash inflation figures in Germany will take centre stage in Europe.
- Final Q2 GDP readings, weekly Claims, Fedspeak come next in the US docket.
Following new eight-month lows around 1.0490, the Euro (EUR) now manages to gather some fresh upside traction against the US Dollar (USD), encouraging the EUR/USD to reclaim the 1.0500 barrier and above in the wake of the opening bell on the old continent on Thursday.
On the other hand, the Greenback’s rally faces some headwinds soon after hitting new 2023 peaks in the 106.80/85 band when gauged by the USD Index (DXY) on Thursday. The knee-jerk in the index also comes in tandem with the lack of direction in US yields, which remain at multi-year levels across the curve.
The same situation occurs in the German money market, where 10-year bund yields approach 2.90% for the first time since mid-July 2011.
From a monetary policy perspective, investors are still incorporating the expectation of the Federal Reserve (Fed) implementing a further 25 bps interest rate hike by the end of the year. At the same time, market conversations continue to suggest a potential pause at the European Central Bank (ECB), despite the ongoing inflation levels well above the bank's target and growing worries about a possible recession.
Later in the session, Germany’s preliminary Inflation Rate will grab all the attention seconded by Economic Sentiment and Consumer Confidence in the broader euro bloc.
Across the ocean, investors are expected to closely follow the release of the final prints of the Q2 GDP Growth Rate seconded by usual weekly Initial Jobless Claims and speeches by Austan Goolsbee (Chicago) and Lisa Cook (FOMC Governor). In addition, Chief Jerome Powell will participate in an event with educators in Washington, DC.
Daily digest market movers: Euro shows some signs of life around 1.0500
- The EUR rebounds from multi-month lows vs. the USD.
- US and German yields trade without clear direction so far on Thursday.
- Markets factor in the Fed hiking rates by 25 bps before year-end.
- Investors anticipate potential interest rate cuts by the Fed in Q3 2024.
- Traders sees the ECB’s tightening campaign entering an impasse.
- Flash Inflation Rate in Spain expected to tick higher in September.
- Intervention fear remain as USD/JPY approaches the 150.00 hurdle.
Technical Analysis: Immediately to the downside comes 1.0481
Despite the ongoing mild rebound, EUR/USD remains well under pressure and continues to target the 2023 low in the 1.0480 region.
Looking at contention levels for the EUR/USD, immediate support emerges at the September low of 1.0491 (September 28) seconded by the 2023 low at 1.0481 (January 6).
When considering potential resistance levels, there is a minor obstacle at the weekly high of 1.0767 (September 12), and a more substantial barrier at the 200-day SMA at 1.0828. If the pair manages to surpass this level, it could open the path for further recovery, targeting the temporary 55-day SMA at 1.0865, with the potential to reach the weekly high of 1.0945 (August 30). Exceeding this level might shift the focus towards the psychological 1.1000 hurdle, ahead of the August peak of 1.1064 (August 10). Beyond these points, the pair could potentially retest the weekly top at 1.1149 (July 27), and even reach the 2023 high at 1.1275 (July 18).
However, it's crucial to keep in mind that as long as the EUR/USD remains below the 200-day SMA, there remains a possibility of ongoing downward pressure.
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.