EUR/USD remains steady ahead of key US inflation report amid ECB’s officials' comments

EUR/USD recovers slightly in anticipation of US CPI release, with ECB members' statements weighing on the Euro.
ECB Vice-President de Guindos hints at possible Eurozone recession, while Schnabel affirms stance on inflation control.
EUR/USD traders focus on upcoming US inflation figures and unemployment claims.

The Euro (EUR) pares some of its Tuesday’s losses and gains ground versus the US Dollar (USD) on Wednesday in muted trading due to investors expecting the release of the latest inflation figures in the United States (US). Nevertheless, some European Central Bank (ECB) members had crossed the wires, weighing on the shared currency. The EUR/USD is trading at 1.0937, posting minuscule gains of 0.06%.

The shared currency capped by ECB’s officials turning less hawkish, open the door for rate cuts

ECB Vice-President Luis de Guindos commented that the Eurozone’s (EU) economy might have been in recession last quarter, and its prospects look weak. He added, “Soft indicators point to an economic contraction in December, too, confirming the possibility of a technical recession in the second half of 2023 and weak prospects for the near term.” Regarding monetary policy, he supports the current level of interest rates.

Recently, ECB’s member Isabel Schnabel agreed with de Guindo's position about a weaker economic outlook for the EU and emphasized the central bank Is on the right path to curb inflation. She added that geopolitical tensions are one of the upside risks to inflation.

Meanwhile, on the dovish side of the spectrum lies ECB’s Centeno stated the central bank should not wait until May to make policy decisions, while Villeroy added the ECB would cut rates in 2024.

Across the pond, the US economic docket is scarce, with investors awaiting the release of the latest inflation report on Thursday. The Consumer Price Index (CPI) for December is expected to rise to 3.2% YoY, from 3.1% in November, while the Core CPI is foreseen to slow from 4% to 3.8% YoY. At the same time, the US Bureau of Labor Statistics (BLS) would announce the latest unemployment claims report for the week ending January 6.

EUR/USD Price Analysis: Technical outlook

The daily chart portrays the pair in consolidation, capped by the boundaries of last Friday’s high and low each at 1.0998/1.0876, with neither buyers nor sellers able to crack the range. For a bullish resumption, EUR/USD buyers must reclaim the January 9 high of 1.0966, followed by January 8 at 1.0978, ahead of challenging 1.1000. On the other hand, if sellers push prices below the January 9 low of 1.0910, that could open the door to breaching the 1.0900 figure, followed by the 50-day moving average at 1.0885.

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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