EUR/USD rises on soft ADP jobs data, Fed Chairman Powell’s remarks

EUR/USD climbs 0.42%, spurred by ADP data and Powell’s remarks.
US ADP February’s report was solid at 140K, improved compared to January, but missed estimates.
Fed’s Powell remarks in testimony at Capitol Hill hint at no immediate rate cuts.

The Euro extended its gains against the US Dollar early during the North American session, sponsored by softer-than-expected ADP jobs report in the United States (US). Thus, the EUR/USD edges up 0.42% and trades at 1.0881 after hitting a two-week high of 1.0887.

EUR/USD hits two-week peak, gains momentum ahead of the European Central Bank’s decision

In February, private companies hired fewer people than the 150K expected, with figures increasing by 140K. Nevertheless, compared to January’s 111K reading, the jobs market remains strong, as noted by Nela Richardson, chief economist of ADP. Richardson said “Job gains remain solid. Pay gains are trending lower but are still above inflation.”

Nevertheless, the data was overshadowed by prepared remarks that the US Federal Reserve (Fed) Chairman Jerome Powell will deliver at Capitol Hill. He said the Fed doesn’t expect it will be appropriate to reduce rates until they [Fed] have greater confidence in inflation moving sustainably towards 2%.

Powell said rates had peaked, acknowledged the progress on inflation, and added that the current restrictive stance puts downward pressure on economic activity and inflation. He said they would ease policy at some point in the year, though they would assess incoming data. He added that the risks to achieving the Fed’s dual goal are moving into better balance.

Following the data and Fed’s Powell remarks, the EUR/USD rose sharply. The US Dollar Index (DXY), which tracks the performance of six other currencies against the buck, tumbled more than 0.30% to 103.47. US Treasury bond yields are diving across the short and long ends of the curve.

In addition, traders brace for the European Central Bank's (ECB) monetary policy decision on Thursday, with analysts expecting no change to their monetary policy. However, traders would look for hints, about a possible rate cut towards the June meeting.

EUR/USD Price Analysis: Technical outlook

The pair has broken above a downslope resistance trendline drawn from January’s highs and the 50-day moving average (DMA) at around 1.0860/70, opening the door to challenge 1.0900. Once that level is cleared, the next resistance emerges at 1.0932, the January 24 swing high, followed by the January 11 high at 1.0999, shy of 1.10. On the other hand, if prices fail to stay above the 1.0860 area, look for a deeper pullback towards the confluence of the 100 and 200-DMAs at around 1.0831/34 before testing 1.0800.

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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