EUR/USD treads water around 1.0800 amid a subdued US Dollar, awaits FOMC minutes

  • EUR/USD trims intraday losses to extend gains on Tuesday.
  • The Euro received downward pressure from the lower European equity markets.
  • PBoC reduced its five-year LPR by 25 bps to support its struggling economy.
  • The decline in the US Treasury yields put downward pressure on the US Dollar.

The EUR/USD pair recovers intraday losses and attempts to continue its winning streak that began on February 14. However, the prevailing risk-off sentiment dominates the market ahead of the Federal Open Market Committee’s (FOMC) meeting minutes, scheduled for Wednesday.

The US Dollar (USD) could strengthen against the Euro (EUR) following recent stronger consumer and producer prices from the United States (US). This data has bolstered market sentiment, suggesting that the Federal Reserve (Fed) may avoid implementing any rate cuts in the upcoming meetings in March and May.

The Euro faces downward pressure as European money markets experience a decline, potentially due to market caution amid diminishing prospects for early interest rate cuts globally. However, China's decision to reduce its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to support its struggling economy may provide some support for the Euro. Traders are anticipating potential volatility surrounding the release of the HCOB Purchasing Managers Index (PMI) data from the Eurozone and Germany, scheduled for Thursday.

The US Dollar Index (DXY) continues to hold its ground in positive territory despite a decrease in US Treasury yields. The DXY edges higher to around 104.40, while the yields on US bonds stand at 4.62% for the 2-year and 4.28% for the 10-year, at the time of writing.

Daily digest market movers: EUR/USD appreciates amid a subdued US Dollar

  • European Union Passenger Car Registrations rose by 12.1% annually in January, against December’s 3.3% fall, which might have provided some support for the Euro.
  • The People’s Bank of China (PBoC) has chosen to keep its one-year Loan Prime Rate (LPR) unchanged at 3.45%. However, it has reduced the five-year LPR by 25 basis points from 4.20% to 3.95%.
  • According to the German Bundesbank Monthly Report, economists at Deutsche Bundesbank anticipate a general decline in the inflation rate in the upcoming months. The earlier timing of Easter this year compared to last year is expected to influence the prices of package holidays, consequently impacting the inflation rate.
  • German Buba Monthly Report projected that inflation for food and other goods will likely decrease further in the coming months. However, price pressures in the services sector are expected to ease at a slower pace, primarily due to the sustained strength in wage growth.
  • ANZ expects that the US Federal Reserve could initiate a rate-cutting cycle from July. According to the CME FedWatch Tool, there is a 53% probability of a 25 basis points rate cut by the US Fed in the June meeting.
  • The Federal Reserve's dot plot for this year suggests an anticipation of 75 basis points in rate cuts, while the Fed funds futures market is pricing in approximately 89 basis points in cuts.
  • The recent remarks from Fed officials suggest the possibility of rate cuts soon. San Francisco Federal Reserve President Mary C. Daly stated that three rate cuts are a reasonable baseline for 2024. Additionally, St. Louis Federal Reserve President James Bullard recommended that the Federal Reserve should contemplate lowering interest rates at its March meeting.

Technical Analysis: EUR/USD hovers around key level of 1.0800

EUR/USD traded near 1.0790 on Tuesday, below the immediate resistance at a psychological level of 1.0800. A breakthrough above this psychological barrier could provide upward support for the pair to retest last week's high at 1.0805.

The technical analysis of the EUR/USD pair displays a 14-4hour Relative Strength Index (RSI) above the 50 mark, indicating bullish sentiment. Additionally, the Moving Average Convergence Divergence (MACD) is positioned above both the centerline and the signal line, signaling a confirmation of the bullish momentum.

On the downside, the EUR/USD pair may find key support at the 21-4hour Exponential Moving Average (EMA) and the 23.6% Fibonacci retracement level at 1.0767. A breach below this level could lead the pair to a test of support around the 38.2% Fibonacci retracement level at 1.0753, aligning with the significant level of 1.0750.

EUR/USD: Four-Hour Chart

Euro price today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the .

USD   -0.21% -0.05% -0.13% -0.43% -0.04% -0.42% -0.10%
EUR 0.22%   0.18% 0.09% -0.22% 0.19% -0.22% 0.12%
GBP 0.05% -0.16%   -0.07% -0.38% 0.02% -0.39% -0.05%
CAD 0.13% -0.09% 0.09%   -0.30% 0.10% -0.30% 0.03%
AUD 0.43% 0.20% 0.38% 0.30%   0.40% 0.01% 0.33%
JPY 0.03% -0.18% -0.02% -0.10% -0.41%   -0.41% -0.06%
NZD 0.42% 0.21% 0.37% 0.30% 0.00% 0.39%   0.32%
CHF 0.12% -0.10% 0.06% -0.03% -0.32% 0.06% -0.32%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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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