- The Euro remains flat above 1.0845 with the broader bearish trend intact.
- The strong US data seen this week has dampened hopes of Fed cuts, boosting the US Dollar.
- ECB President Lagarde discards rate cuts before next summer, which has provided some support to the Euro.
The Euro (EUR) is moving sideways on Friday, unable to put a significant distance from the one-month lows at 1.0845. ECB President, Christine Lagarde avoided any comments on monetary policy in her last speech at the Davos summit although she observed a declining impulse from consumption with the labor market loosening and the excess of savings falling.
Earlier this week, a string of strong US macroeconomic has prompted investors to reassess their rate cut expectations, both in the timing and the intensity, which has boosted the US Dollar across the board.
In the calendar today, the US, the Michigan Consumer Sentiment Index and the University of Michigan Consumer Inflation expectations will attract some attention focus. Before the US session ends, San Francisco Fed President, Mary Daly, might give some more info about the bank’s monetary policy outlook.
Daily digest market movers: Euro remains depressed near one-month lows, weighed by USD strength
- The Euro is hesitating above the 1.0845 support area as the US Dollar strengthens with investors scaling back hopes of Fed cuts.
- The US Michigan Consumer Sentiment Index is expected to have improved to a 70 reading, its highest level since July.
- On Thursday, US Jobless claims eased to 187K in the week of January 12, down from 203K in the previous week and against expectations of an increase to 207K.
- US Unemployment levels corroborate the resilience of the US economy pouring more cold water on investor’s hopes of Fed cuts in March.
- The ECB monetary policy accounts released on Thursday reflect the policymakers' conviction that inflation is subsiding, however, rate cuts are still off the table.
- German PPI contracted at a 1.2% pace in December and 8.6% year-on-year, beyond the 0.5% and 8% respective declines forecasted by market experts.
- On Thursday, Atlanta Fed President, Raphael Bostic affirmed that he does not see interest rate cuts coming until the third quarter.
- The CME Group FedWatch Tool shows a 55% chance of rate cuts in March, down from 75% last week.
Technical Analysis: EUR/USD remains biased lower with 1.0845 support holding bears for now
The EUR/USD remains practically flat on Friday and is on track for a 0.6% decline this week. The near-term bias is negative and the support level at 1.0845 is keeping the pair from further decline.
A clear break below 1.0845 would activate a bearish Head and Shoulders (H&S) pattern increasing negative pressure towards 1.0800 and 1.0725. The H&S measured target is the 78.6% Fibonacci retracement of the late 2023 rally, at 1.0600.
On the upside, Euro bulls are likely to meet a significant resistance at the 1.0920/30 area, where previous trendline support meets the confluence of the 4-hour 200 and 50 SMAs. Above here, the next target is 1.1000.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.57% | 0.43% | 0.46% | 1.37% | 1.99% | 1.82% | 1.84% | |
| EUR | -0.57% | -0.13% | -0.11% | 0.81% | 1.43% | 1.27% | 1.28% | |
| GBP | -0.44% | 0.14% | 0.04% | 0.96% | 1.56% | 1.42% | 1.43% | |
| CAD | -0.46% | 0.11% | -0.02% | 0.91% | 1.54% | 1.38% | 1.39% | |
| AUD | -1.39% | -0.81% | -0.94% | -0.92% | 0.64% | 0.47% | 0.48% | |
| JPY | -2.02% | -1.45% | -1.71% | -1.55% | -0.63% | -0.16% | -0.15% | |
| NZD | -1.85% | -1.29% | -1.42% | -1.40% | -0.47% | 0.15% | 0.02% | |
| CHF | -1.88% | -1.30% | -1.44% | -1.40% | -0.46% | 0.15% | -0.02% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
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Geopolitics back on the radar
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Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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