Euro resumes the downtrend and confronts 1.0900

Euro surrenders initial gains and approaches the 1.0900 region.
Stocks markets in Europe adds to Monday's losses.
The US Dollar regains composure and advances modestly.
US traders return to their desks following Monday’s holiday.
The potential next moves by the Fed, ECB remain in centre stage.
Cautiousness is seen picking up pace ahead of Powell’s testimonies.

The initial upward movement of the European currency (EUR) against the US dollar (USD) towards the 1.0950 level has been reversed, leading EUR/USD to shift its focus towards the downside, specifically targeting the 1.0900 area. This shift in sentiment is attributed to growing concerns about China's recovery from the pandemic, which has further dampened market sentiment.

The initial slight improvement in risk appetite eventually faded away, as market participants deemed the 10 basis points reduction in the People's Bank of China's (PBoC) 1-year medium-term lending facility (MLF) during the Asian session as insufficient.

Taking a broader perspective, investors are closely monitoring the potential interest rate decisions of both the Federal Reserve and the European Central Bank (ECB), with expectations of both central banks resuming their hiking campaigns in July.

In Germany, Producer Prices experienced a monthly decline of 1.4% in May but recorded a year-on-year increase of 1.0%. Additionally, the Eurozone's Current Account surplus narrowed to €4 billion in April, while Construction Output saw a 0.2% expansion in the year leading up to April. The upcoming agenda includes speeches by ECB Board members E. McCaul and L. De Guindos.

On the US front, Building Permits expanded by 5.2% month-on-month in May, reaching 1.491 million units, while Housing Starts rose significantly by 21.7% month-on-month, totaling 1.631 million units. Furthermore, speeches by St. Louis Fed member J. Bullard, who holds a hawkish stance and is a voter in 2025, and NY Fed member J. Williams, a centrist permanent voter, are also scheduled.

Daily digest market movers: Euro now faces a potential drop to 1.0900

The US dollar regains momentum as traders grow cautious on China.
The PBoC lowers the 1-year medium-term lending facility (MLF) to support the ongoing slow economic rebound.
The testimonies of the Federal Reserve's Chair, J. Powell, will be the significant events to watch later this week.
Currently, the primary factor influencing the price movement of the currency pair is the divergence in policies between the ECB and the Fed.
ECB's O. Rehn highlighted the importance of a steady decline in core prices in the euro area.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.