- The Euro makes a U-turn against the US Dollar.
- European stocks on their way to another close in the red on Friday.
- US PCE matches consensus in September.
The Euro (EUR) accelerates its gains vs. the US Dollar (USD) at the end of the week, encouraging EUR/USD to approach once again to the key hurdle at 1.0600 the figure at the end of the week.
In the meantime, the Greenback now comes under some tepid selling pressure and revisits the 106.40 zone when measured by the USD Index (DXY). The so-far daily downtick in the Dollar comes in tandem with the broad-based absence of direction in US yields across different maturities.
In the realm of monetary policy, a growing consensus has formed amongst market participants that the Federal Reserve (Fed) will preserve its present stance of retaining interest rates unchanged at the meeting on November 1. The door remains open, however, to a potential rate hike in December, a view that appears well propped up by the resilience of the US economy and still elevated inflation.
Back to the European Central Bank (ECB), there were no surprises at its event on Thursday following a unanimous hold. President Christine Lagarde reiterated once again that there is still job to be done regarding inflation, while it is expected that inflation will remain too high for too long. Adding a bearish tone to the meeting, Lagarde acknowledged that risks to the eocnomic outlook appear tilted to the downside.
On the domestic calendar, the ECB released its Survey of Professional Forecasters (SPF) and now sees inflation tracked by HICP at 2.7% in 2024 and 2.1% in 2025. Regarding the economic activity, the survey sees real GDP growth at 0.9% and 1.5% for the next year and 2025, respectively.
In the US, inflation figures tracked by the Personal Consumption Expenditures (PCE) Price Index rose 3.4% YoY in September and 3.7% YoY when it comes to the Core PCE. In addition, Personal Income rose 0.3% MoM during last month, Personal Spending gained 0.7% MoM and the final Michigan Consumer Sentiment Index improved to 63.8 for Ocotber.
Daily digest market movers: Euro shifts its attention to 1.0600 and above
- The EUR gathers fresh steam vs. the USD on Friday.
- US and German yields attempt a mild bounce.
- The Fed could still hike rates by 25 basis points in December.
- Investors continue to digest the ECB’s decision to leave borrowing costs unchanged.
- Fears of an extension of the Middle East crisis appear to be on the rise.
- The possibility of FX intervention keeps gyrating around USD/JPY.
- Consumer Confidence in France ticked higher to 84 in October.
- ECB's SPF sees inflation in the region at 2.1% in 2025.
- US PCE softened in September, Consumer Sentiment improved in October.
Technical Analysis: Euro faces interim hurdle at the 55-day SMA
If the selling trend continues, immediate support might be found at the October 13 low of 1.0495, followed by the October 3 low of 1.0448 before reaching the round level of 1.0400. If this zone is breached, the pair may continue to decline towards the November 30, 2022 low of 1.0290 and the 2022 low of 1.0222 recorded on November 21.
If bulls reclaim control, EUR/USD will face first resistance at the October 24 high of 1.0694, which appears to be supported by the proximity of the temporary 55-day Simple Moving Average (SMA). The breakout of this zone exposes the high of 1.0767 on September 12, which precedes the key 200-day SMA at 1.0812. Once this level is surpassed, it may imply a further push for the August 30 height of 1.0945, prior hitting the psychological 1.1000 mark. If the upward trend continues, the August 10 record of 1.1064 may be challenged, followed by the July 27 high of 1.1149, and potentially even the July 18 peak of 1.1275.
As long as the EUR/USD remains below the 200-day SMA, the pair may remain under 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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