EUR/USD pauses with ECB rate call around the corner
|- EUR/USD hung up on tense bidding near 1.0900.
- Bullish momentum pulls up short as Fiber fails to crack into new technical highs.
- ECB rate call in the barrel for Thursday after US data sparks renewed rate cut hopes.
EUR/USD rotated around 1.0900 on Tuesday as markets grappled with September rate cut hopes getting pinned even further into the high end after US Retail Sales figures eased in June. Markets have fully priced in the start of a Federal Reserve (Fed) rate-cutting cycle in September, with up to three quarter-point cuts expected for the year. On the European side, the European Central Bank’s (ECB) latest rate call looms ahead on Thursday.
Forex Today: UK, EMU inflation come to the fore along with US data
In June, US Retail Sales remained flat at 0.0%, matching forecasts and dropping from the revised 0.3% in the previous month. This decline in Retail Sales added to the market's expectation of a rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on September 18. The softening of US Retail Sales combined with a recent cooling in Consumer Price Index (CPI) data last week has increased the likelihood of a rate cut in September. According to the CME’s FedWatch Tool, the markets are now anticipating almost a 100% chance of at least a quarter-point rate reduction in September, with the possibility of up to three cuts by 2024.
The ECB is broadly expected to keep rates on hold on Thursday as policymakers wait to see if data will improve following an initial quarter-point cut in June.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | 0.10% | 0.13% | 0.21% | 0.76% | 0.92% | -0.08% | |
| EUR | -0.07% | 0.07% | 0.24% | 0.33% | 0.73% | 1.04% | 0.04% | |
| GBP | -0.10% | -0.07% | 0.27% | 0.26% | 0.66% | 0.92% | -0.03% | |
| JPY | -0.13% | -0.24% | -0.27% | 0.08% | 0.42% | 0.75% | -0.40% | |
| CAD | -0.21% | -0.33% | -0.26% | -0.08% | 0.49% | 0.71% | -0.29% | |
| AUD | -0.76% | -0.73% | -0.66% | -0.42% | -0.49% | 0.31% | -0.69% | |
| NZD | -0.92% | -1.04% | -0.92% | -0.75% | -0.71% | -0.31% | -1.00% | |
| CHF | 0.08% | -0.04% | 0.03% | 0.40% | 0.29% | 0.69% | 1.00% |
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 technical outlook
EUR/USD was unable to break decisively through the 1.0900 handle last week, and intraday bidding churns just south of the key technical barrier as markets await a meaningful push in either direction. The Fiber is holding close to a four-month high set at 1.0922 last Friday, and the key for buyers will be to keep EUR/USD buoyed above the 200-day Exponential Moving Average (EMA) at 1.0789.
Fiber trading is hung up on the upper bound of a rough descending channel, and continued weakness could drag bulls back into the low end with the last swing low priced in just north of 1.0650.
EUR/USD hourly chart
EUR/USD daily chart
Euro FAQs
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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