Euro maintains the offered stance near 1.0600
|- The Euro appears offered against the US Dollar near 1.0600, while the DXY USD Index trespasses 106.00.
- Consumer Confidence in Germany is set to worsen in November, while German and Eurozone PMIs remained in contraction.
- Manufacturing and Services PMIs are also due in the US later in the session.
Selling pressure on the Euro (EUR) against the US Dollar (USD) intensified following the release of lackluster Purchasing Managers Index (PMI) data for both the Eurozone and Germany. As a result, EUR/USD retreated to the vicinity of 1.0600, after briefly reaching levels just below 1.0700 earlier on Tuesday.
On the other hand, the US Dollar (USD) managed to regain some stability and rebounded from four-week lows around the 105.40 range in terms of the USD Index (DXY). This recovery was supported by a slight increase in US yields and a loss of momentum in risk sentiment.
With regards to monetary policy, participants foresee the Federal Reserve (Fed) maintaining its present stance of leaving rates unchanged at the November 1 event. This perspective was reinforced by remarks from Fed Chair Jerome Powell during his appearance at the Economic Club of New York last week.
Concurrently, investors are contemplating the potential of the European Central Bank (ECB) discontinuing its tightening cycle. This occurs in spite of inflation levels surpassing the bank's target and developing concerns regarding the risk of an economic slowdown or stagflation in the eurozone's economy.
In the domestic calendar, Consumer Confidence in Germany tracked by GfK worsened to -28.1 for November. Still in Germany, flash Manufacturing and Services PMI came in at 40.7 and 48.0, respectively, for the current month. In the broader eurozone, those gauges came in at 43.0 and 47.8, respectively.
Across the pond, US flash Manufacturing and Services PMIs for the current month are also in the pipeline.
Daily digest market movers: Euro risks a deeper retracement below 1.0600
- The EUR gives away the initial advance against the USD on Tuesday.
- US yields trade with humble gains vs. a modest retracement in Bund yields.
- Markets expect the Fed to extend its impasse in November.
- Investors see the ECB entering a pause in its tightening campaign.
- ECB's Christine Lagarde said the battle to tacke inflation is going well (what?).
- Geopolitical concerns in the Middle East appear somewhat diminished.
- UK jobs report surprised to the downside.
- RBA Governor Michele Bullock suggested inflation could hit the target later than estimated.
Technical Analysis: Euro faces a near-term support around 1.0500
EUR/USD runs out of steam near the key round level of 1.0700 on Tuesday, sparking a marked corrective decline sponsored by discouraging results from the euro calendar.
If the bullish trend continues, EUR/USD may challenge the transitory hurdle at the 55-day Simple Moving Average (SMA) at 1.0702 prior to the September 20 high of 1.0736 and the important 200-day SMA of 1.0816. A break above this level might signal a push to the August 30 top of 1.0945, just ahead of the psychological mark of 1.1000. Any more gains might re-establish a challenge to the August 10 peak of 1.1064 before hitting the July 27 high of 1.1149 and possibly the 2023 top of 1.1275 seen on July 18.
If the selling trend resumes, there is immediate support around the October 13 low of 1.0495, which is just ahead of the 2023 low of 1.0448 from October 3, before the round level of 1.0400. If this zone is breached, the pair could slip back to 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.
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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