EUR/USD treads water above 1.0700 after Eurozone GDP, focus shifts to US Retail Sales

  • EUR/USD lost ground as US Dollar surged after the release of solid US CPI data.
  • The Euro received upward support from the improved Economic Sentiment data.
  • Eurozone GDP YoY and QoQ are unchanged at the readings of 0.1% and 0.0%, respectively, in Q4.
  • FedWatch Tool suggests 37% and 51% probability of a 25 bps rate cut by the Fed in May and June, respectively.

The EUR/USD pair grapples to rebound from three-month lows on Wednesday. However, the Euro (EUR) faces challenges after the release of the seasonally adjusted Eurozone Gross Domestic Product (GDP) data, which showed consistency by meeting the market expectations for the fourth quarter, which weakens the Euro, consequently, undermining the EUR/USD pair. Furthermore, the higher-than-expected US Inflation has shifted market sentiment toward no interest rate adjustment by the Federal Reserve (Fed) in the upcoming March meeting. This has provided upward support for the US Dollar (USD) against the Euro (EUR).

The Euro experienced a moment of respite following the release of better-than-expected Economic Sentiment data from both the Eurozone and Germany on Tuesday. Investors are now eagerly awaiting preliminary Gross Domestic Product (GDP) data slated for release on Wednesday. Furthermore, market participants are keenly paying attention to a scheduled speech by Christine Lagarde, the President of the European Central Bank (ECB), on Thursday.

The US Dollar Index (DXY) rebounds from intraday losses and continues to extend gains despite downbeat US Treasury yields. Market sentiment has undergone a significant shift, with expectations for an unchanged interest rate next month soaring to near 90%, a marked difference from just a month ago. Investors are now contemplating the possibility of a rate cut by the Federal Reserve (Fed) in June.

Daily digest market movers: EUR/USD depreciates amid an improved US Dollar

  • The US Dollar Index rises to 104.90 with the 2-year and 10-year US Treasury yields at 4.60% and 4.29%, respectively, by the press time.
  • According to the FedWatch Tool, traders are pricing in a 37% probability of a 25 basis points (bps) rate cut by the Federal Reserve in May and 51% in June.
  • US headline Consumer Price Index (CPI) rose by 3.1% in January, surpassing the expected 2.9% but below the previous rate of 3.4%.
  • US Inflation increased by 0.3% MoM, against the expectation of maintaining the previous reading of 0.2%.
  • US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
  • US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.
  • ECB Vice President Luis de Guindos emphasized that although progress is being made, wage pressures persist at elevated levels, and there isn't enough data available yet to confirm a reduction in these pressures.
  • The preliminary Eurozone Gross Domestic Product (GDP) seasonally adjusted remained unchanged at 0.1% year-over-year in the fourth quarter, aligning with market expectations.
  • The Eurozone GDP seasonally adjusted quarter-over-quarter remained flat at 0.0%, consistent with the reading in the previous quarter.

Technical Analysis: EUR/USD hovers around the psychological level of 1.0700

EUR/USD trades near a psychological level of 1.0700 on Wednesday, followed by the next major support at 1.0650 level. A break below the latter could push the EUR/USD pair to navigate the psychological region around 1.0600.

On the upside, the EUR/USD pair could find an immediate barrier at the major level of 1.0750 followed by the 50-4hr Exponential Moving Average (EMA) at 1.0770. A breakthrough above this level could influence the pair to explore the area around the 23.6% Fibonacci retracement level at 1.0799 aligned with the psychological barrier at 1.0800.

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 weakest against the Australian Dollar.

USD   0.01% 0.29% -0.25% -0.41% -0.10% -0.39% -0.06%
EUR 0.00%   0.29% -0.25% -0.41% -0.11% -0.39% -0.06%
GBP -0.28% -0.28%   -0.53% -0.68% -0.39% -0.67% -0.34%
CAD 0.26% 0.25% 0.54%   -0.15% 0.16% -0.12% 0.18%
AUD 0.39% 0.41% 0.69% 0.15%   0.30% 0.02% 0.33%
JPY 0.09% 0.06% 0.38% -0.14% -0.30%   -0.30% 0.03%
NZD 0.39% 0.39% 0.67% 0.14% -0.02% 0.29%   0.34%
CHF 0.07% 0.06% 0.35% -0.19% -0.33% -0.03% -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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