Euro advances firmly to the 1.1000 region

Euro maintains the firm pace near 1.1000 vs. the Greenback.
Stocks in Europe trade in a mixed fashion on Tuesday.
EUR/USD climbs to daily tops in the 1.0975/80 band.
ECB’s Lagarde said rates must remain high for as long as necessary.
The ECB Forum in Portugal remains in centre stage.

The Euro (EUR) has continued its positive momentum from Monday, resulting in EUR/USD reaching the 1.0975/80 band, or 3-day highs, on Tuesday. On the other hand, the US Dollar is experiencing a downward correction, relegating the USD Index (DXY) to trade in 3-day lows in the 102.30 region amidst declining US yields. Meanwhile, German 10-year Bund yields follow suit and return to the negative territory below the 2.30% level.

Contributing to the daily uptick in EUR/USD emerges European Central Bank (ECB) Board member Martin Kazaks (hawk) after he stated that he sees rate hikes extending beyond July, despite the economy softening. He mentioned that he cannot determine at the moment the extent to which rates will increase. Moreover, he pointed out that the markets are making a mistake by predicting rate cuts.

Also underpinning the bid bias in the single currency, ECB President Lagarde argued at her speech at the ECB Forum on Central Banking that inflation in the euro area is excessively high and affirmed the bank's commitment to achieving the inflation goal regardless of the circumstances. Lagarde emphasized the need to implement sufficiently restrictive interest rates, intending to maintain elevated rates for as long as needed. She also noted that the impact of increasing wages on inflation has recently been magnified. She also mentioned that they have yet to observe the complete consequences of the cumulative rate hikes implemented since last July.

Finally, ECB board member Gediminas Simkus (hawk) suggested that an interest rate hike in September should not be ruled out and reiterated that rates must remain in restrictive levels to clinch the bank's inflation target.

The potential next steps by both the Federal Reserve and the ECB in normalizing their monetary policies are still being debated amidst increasing speculation of an economic slowdown on both sides of the Atlantic.

Furthermore, investors are anticipating another 25 bps rate hike by the ECB in July, while the Federal Reserve is expected to follow suit, according to recent comments and testimony by Chair Jerome Powell.

Regarding US data, Durable Goods Orders and New Home Sales for May, FHFA House Price Index for April, and the Consumer Confidence gauge by the Conference Board for the current month are scheduled to be released later in the session.

Daily digest market movers: Euro gathers extra impulse amidst risk-on mood

Further weakness in the US Dollar props up the daily gains in the Euro.
Consumer Confidence in Italy surprised to the upside in June.
ECB Lagarde reiterated inflation remains too high.
ECB Kazaks suggested talks of rate cuts are premature.
ECB Simkus did not close the door to a September hike.
US, German yields now extend the weekly leg lower.
Investors’ focus will be on the release of US Consumer Confidence.

Technical Analysis: Euro set sail to another test of 1.1000

EUR/USD manages to gather some impulse and embarks on a potential rebound to, initially, the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1181, just before another round level at 1.1200.

On the downside, the June low at 1.0844 (June 23) emerges as the immediate support prior to the provisional 100-day SMA at 1.0811. The loss of the latter exposes a deeper pullback to the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).

The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0572.

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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