- EUR/USD tumbled 0.6% on Tuesday as risk-off flows drag Fiber down.
- Middle East escalations crimped already-hobbled investor sentiment.
- EU HICP inflation and US ISM PMIs broadly miss the mark.
EUR/USD tumbled six-tenths of one percent on Tuesday, finding a minor bounce from the 1.1050 level as geopolitical tensions and souring economic data crimp risk appetite flows, bolstering the Greenback and dragging the Fiber to its lowest prices in almost a month.
European Harmonized Index of Consumer Price (HICP) inflation ticked lower at a faster pace than expected in September. YoY core HICP inflation ticked down to 2.7% on an annual basis, while MoM headline HICP inflation swooned to just 1.8% in September, an even faster drop from the previous 2.2% than the forecast 1.9%.
Forex Today: The US labour market will be in the spotlight along with Fed speakers
European economic data will take a backseat for the remainder of the week as investors pivot to face Friday’s upcoming Nonfarm Payrolls (NFP) report. A trickle of meaningful-in-the-aggregate yet individually meaningless economic data litters the landscape on the road to Friday’s NFP jobs report, and investors are grappling with middling releases that are routinely missing the mark.
In September, the US ISM Manufacturing PMI remained at 47.2 for the second consecutive month, falling short of the expected increase to 47.5. Additionally, ISM Manufacturing Prices Paid dropped to 48.3, down from the previous 54.0, indicating a contraction. Shifting focus to US employment data, JOLTS Job Openings in August surged to 8.04 million, surpassing the revised 7.7 million from the previous period. Despite this, the increase in job openings may not directly translate into new hires as the ISM Manufacturing Employment Index for September declined to 43.9 from the previous 46.0, failing to meet the anticipated rise to 47.0.
Turning to geopolitical concerns, investor attention has pivoted towards the Middle East following reports of Iran launching a missile attack against Israel in response to Israel's recent incursion into Lebanon. The US has pledged to respond in support of Israel, leading to apprehension among investors about a potential rapid escalation of the conflict.
EUR/USD price forecast
Tuesday’s backslide saw Fiber price action come within inches of the 50-day Exponential Moving Average (EMA) near 1.1045. EUR/USD found some bids late in the day, but the pair remains firmly off-balance, entirely reversing the latest bullish push into yearly highs above 1.1200.
With highs slipping out of reach of intraday bidders, buyers are now on the defensive and near-term momentum is leaning increasingly bearish. The immediate near-term goal for bidding pressure will be to drag the bidding line back above the 1.1100 handle.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 19 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%).
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.
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.
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.
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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