Euro breaches 1.0900 to reach new multi-day lows
|- The Euro keeps the offered stance well and sound against the US Dollar.
- European stocks en route to close with decent gains across the board.
- US PCE, Core PCE matched initial estimates in October.
On Thursday, the Euro (EUR) experienced increased downward pressure against the US Dollar (USD), causing EUR/USD to break below the key support level of 1.0900, reaching fresh multi-day lows.
In contrast, the Greenback gained additional momentum and pushed the USD Index (DXY) back above the 103.00 level against the backdrop of a decent recovery in US yields across different timeframes.
Looking at the broader scenario, the current setting for monetary policy retains an unchanged character, with investors factoring in the potential for prospective interest rate reductions by both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
Further weakness around the European currency came in response to disappointing figures from the German labour market, where the Unemployment Rate ticked higher to 5.9% in November and the Unemployment Change increased by 22K individuals. Adding to this view, flash Inflation Rate in the broader Eurozone showed the CPI gained 2.4% in the year to November, while the Core CPI rose 3.6% from a year earlier and the Unemployment Rate held steady at 6.5%.
In the US, inflation measured by the headline PCE rose at an annualized 3.0% (from 3.4%) in October and Core PCE increased by 3.5% (from 3.7%). Further data saw Initial Jobless Claims rising by 218K in the week to November 25, Personal Income and Personal Spending both increasing by 0.2% MoM. Later in the session, Pending Home Sales will close the daily calendar.
Daily digest market movers: Euro gives away further ground on Dollar's bounce
- The EUR faces extra downside against the USD.
- US and German yields reverse the initial pessimism.
- Markets see the Fed trimming its interest rates in Q2 2024.
- Investors also expect the ECB to start reducing its rates in H1 2024.
- ECB's Fabio Panetta reiterated that the euro bloc still faces downside risks.
Technical Analysis: Euro's upside now looks capped by 1.1020
The acceleration of the downward trend sees EUR/USD retreating to the proximity of the 1.0900 zone on Thursday, adding to Wednesday’s retracement.
Further weakness could see EUR/USD facing an initial minor suport at 1.0852 (November 22). If cleared, the pair could then challen the key 200-day SMA at 1.0816, ahead of the provisional 55-day SMA at 1.0676. Down from here emerges the weekly low of 1.0495 (October 13) prior to the 2023 low of 1.0448 (October 3) and the round level of 1.0400.
In case bulls regain the upper hand, the pair is expected to meet the next up-barrier at the November high of 1.1017 (November 29) ahead of the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all of which precede the 2023 high of 1.1275 (July 18).
Meanwhile, the pair is seen maintaining its constructive outlook while above the 200-day SMA.
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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