Euro remains depressed and could challenge 1.0600 in the short term

The Euro adds to the weekly retracement against the US Dollar.
Stocks in Europe on their way to close with marked losses on Thursday.
EUR/USD meets initial support around 1.0615.
The USD Index (DXY) clings to its daily gains near 105.50.
The Fed left the door open to another 25 bps rate hike before year-end.
The Philly Fed Index surprised to the downside in September.
ECB President Christine Lagarde speaks later in the session.

After initially dropping to new multi-month lows, the Euro (EUR) was able to recover most of its losses against the US Dollar (USD), causing EUR/USD to climb back above the 1.0650 level during midday trading in Europe.

Meanwhile, the USD Index (DXY) continued its upward momentum and reached new six-month highs around 105.70 earlier in the European trading session pari passu with investors processing the recent Federal Reserve (Fed) event.

The Dollar's uptick, however, fizzled out and sparked a corrective move in the index to the mid-105.00s against the backdrop of a knee-jerk in the short end of the US yield curve vs. the continuation of the march north in the belly and the long end. Meanwhile, the 10-year bund yields regain the area of recent peaks near 2.75%.

Following the hawkish hold by the Fed at its meeting on Wednesday, Chairman Jerome Powell emphasized that there is still a significant journey ahead in achieving the target inflation rate of 2%. Additionally, he stated that the FOMC decided to maintain the current interest rates in light of the progress made thus far but remains prepared to raise rates when deemed suitable.

In the eurozone's economic calendar, the preliminary reading of Consumer Confidence tracked by the European Commission is due, along with a speech by the ECB President Christine Lagarde.

In the US, usual weekly Initial Jobless Claims are due, followed by the Philly Fed Manufacturing Index, the CB Leading Economic Index and Existing Home Sales.

Daily digest market movers: Euro looks to USD for direction

The EUR rebounds from fresh lows against the USD.
US and German yields advance marginally on Thursday.
The Fed left the door open to another 25 bps rate raise in the next months.
The BoE surprises everybody and leaves rates unchanged at 5.25%.
Markets price in probable rate cuts by the Fed in Q3 2024.
An impasse in the ECB’s hiking cycle appears to be gathering traction.
ECB's Joaquim Nagel says it is not clear whether the bank hit the peak rate yet.
ECB's Martin Kazaks favours keeping the restrictive stance for longer.
ECB's Yannis Stournaras suggests rates have peaked and the next move could be a cut.
The SNB unexpectdely kept rates on hold at 1.75% (vs. an expected 25 bps hike)
Intervention fears surround the price action around USD/JPY.

Technical Analysis: Euro risks a deeper decline below the 200-day SMA

EUR/USD reverses Thursday’s decline to multi-month lows near 1.0615, although the pair's outlook remains tilted to the bearish side for the time being.

If the EUR/USD breaches its September 14 low of 1.0616, there is a chance it could revisit the March 15 low of 1.0516 before reaching the 2023 bottom of 1.0481 from January 6.

On the upside, there is a minor resistance level at the weekly high of 1.0767 from September 12, followed by the more significant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could pave the way for a continued recovery towards the temporary 55-day SMA at 1.0911, with the possibility of reaching the August 30 top of 1.0945. Surpassing the latter could bring the psychological level of 1.1000 into focus, followed by the August 10 peak of 1.1064. Beyond that, the pair might retest the July 27 high at 1.1149 and potentially reach the 2023 top at 1.1275 from July 18.

As long as the EUR/USD remains below the 200-day SMA, there is a chance that the pair will continue to face 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.

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