Euro keeps the bid tone in the upper end of the range
|- Euro's advance runs out of steam in multi-week tops around 1.0970.
- Stocks markets in Europe trade with decent gains post-ECB.
- The risk-on mood keeps the US Dollar's price action subdued.
- ECB’s rate-setters advocated for extra hikes in the summer.
- EMU Final inflation figures were bang on with the preliminary data.
- US Flash Consumer Sentiment comes later in the session.
The European currency (EUR) keeps navigating a narrow trading range vs. the Greenback and motivates EUR/USD to hover over the mid-1.0900s so far.
In the meantime, the broad risk appetite trends continue to favour the pair and its peers, as investors keep assessing Thursday’s hawkish message from the ECB, all after the central bank walked the talk and raised rates by 25 bps and signalled that more is coming at the July meeting.
On the latter, further hawkish narrative from ECB Board members favoured an extra 25 bps rate hike in July and probably September, a view that falls in line with President Christine Lagarde’s comments on Thursday.
Back at the ECB event, the bank's rate increases were underscored during the press conference, where President Lagarde dedicated a significant amount of time emphasizing factors that contribute to inflation growth, such as robust wage increases, improved profit margins, and high expectations of inflation. Although potential risks to economic growth and stricter financial conditions were acknowledged, the primary message conveyed by the ECB today was its commitment to maintain the upward trajectory of interest rates. As Lagarde mentioned, the ECB has no intention of considering a pause at the moment.
The domestic calendar confirmed that disinflationary pressures remained well in place in the euro area in May, despite inflation remaining far away from the ECB’s target. On this basis, the headline CPI rose at an annualized 6.1% during the last month and 5.3% when it comes to Core prices (excluding costs for energy and food).
Across the Atlantic, the advanced Michigan Consumer Sentiment gauge will be the salient release across the pond, along with the speech by FOMC’s Christopher Waller (permanent voter, hawk).
Daily digest market movers: Euro points to extra gains in the short term
- The USD alternates gains witth losses and relegates the USD Index (DXY) to trade close to the 102.00 neighbourhood.
- FOMC's Christopher Waller favoured extra tightening if Core inflation does not improve.
- US and German yields keep the mixed performance, although their inversion keep signalling the likelihood of a recession in both the US and Europe in the next months.
- It seems that a continuous decrease in the Greenback is not certain after the FOMC event on Wednesday, as the Committee plans to resume increasing interest rates, potentially starting as early as July and Jerome Powell clarified that the decision not to increase rates at the current meeting was not a "skip".
- EMU Final inflation figures coincided with the flash prints in May.
- Consensus expects a slight improvement in the US Consumer Sentiment in June, expected later in the NA session.
Technical Analysis: Major resistance emerges at the 2023 top near 1.1100
Euro (EUR) printed a new monthly high at 1.0970 on June 16. Further gains need to rapidly clear this level to allow for a potential move to the psychological 1.1000 hurdle. North from here, the pair could challenge the 2023 high at 1.1095 (April 26), which is closely followed by the round level of 1.1100 and comes ahead of the weekly top of 1.1184 (March 31, 2022). In addition, the latter appears propped up by the proximity of the 200-week SMA, today at 1.1182.
In the broader picture, the constructive view on the pair remains unchanged above the key 200-day SMA, today at 1.0540, while the RSI around the 65 region allows for the continuation of the uptrend in the very near term before entering the overbought territory.
In case bears regain the initiative, there are no contention levels of significance until the May low of 1.0635 (May 31). The breach of this level could sponsor a deeper decline to the March low of 1.0516 (March 15) seconded by the 2023 low at 1.0481 (January 6).
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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