Euro gives away some gains and revisits 1.0570, looks at Dollar, geopolitics
- The Euro trades on the defensive vs. the US Dollar.
- Stocks in Europe open Friday’s session with losses.
- EUR/USD retreats from weekly highs past 1.0600.
- The USD Index (DXY) appears well supported by 106.00 so far.
- Markets continue to digest Chairman Powell’s comments.
The Euro (EUR) is trading slightly on the defensive against the US Dollar (USD), prompting EUR/USD to recede to the 1.0570-1.0580 band following Thursday’s weekly peaks past the 1.0600 barrier.
Meanwhile, the Greenback manages to regain some composure and advances modestly around the low-106.00s when gauged by the USD Index (DXY) amidst some corrective retracement in US yields across the curve and a knee-jerk in the sentiment around the risk complex.
Keeping the focus on monetary policy, investors now anticipate the Federal Reserve (Fed) to retain its current stance of not changing interest rates at the November meeting, a view that was reinforced by comments from Fed’s Jerome Powell on Thursday.
Meanwhile, financial market participants are pondering the potential of the European Central Bank (ECB) discontinuing policy measures, despite inflation levels beyond the bank's target and growing concerns about the risk of a European zone economic slowdown or stagflation.
The European calendar will be empty at the end of the week.
No data releases scheduled across the ocean either, although investors are expected to follow speeches by Cleveland Fed Loretta Mester (2024 voter, hawk) and Philadelphia Fed Patrick Harker (voter, hawk).
Daily digest market movers: Euro runs out of steam north of 1.0600
- The EUR weakens a tad vs. the USD on Friday.
- US and German yields come under pressure and recede from peaks.
- Investors see the Fed keeping its interest rate unchanged in November.
- Markets expect believe the ECB to enter an impasse in its hiking cycle.
- Geopolitical fears continue to dominate the landscape.
- Japanese Inflation Rate eased to 3.0% in September.
Technical Analysis: Euro’s bullish attempts remain capped by 1.0600 and above
The EUR/USD retreats from Thursday’s tops north of 1.0600 the figure and revisits the 1.0570 zone at the end of the week.
If the bullish trend continues, EUR/USD may confront the October high of 1.0639 (October 12), before reaching the weekly top of 1.0736 (September 20) and the crucial 200-day SMA of 1.0817. A break above this level might signal a push to the weekly peak of 1.0945 (August 30) ahead of the psychological mark of 1.1000. Any more gains could put a potential test of the August high of 1.1064 (August 10) back on the radar prior to the weekly top of 1.1149 (July 27) and possibly the 2023 peak of 1.1275 (July 18).
If the selling bias returns, the 2023 low of 1.0448 (October 3) emerges as the immediate contention area ahead of the round level of 1.0400. If this region is breached, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 30, 2022) may be retested (November 21, 2022).
It is critical to remember that as long as the EUR/USD continues below the 200-day SMA, the possibility of continuous bearish pressure exists.
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.