Euro climbs to weekly peaks around 1.0840 post-US data

  • The Euro regains momentum and advances to 1.0840 against the US Dollar.
  • Stocks in Europe on their way to close another positive day.
  • The USD Index (DXY) quickly plummets to 103.80.
  • US, German yields now resume the downward trend.
  • Consumer Confidence in Germany weakens in September.
  • US House Price Index rose 0.3% MoM in June.
  • US Consumer Confidence disappoints in August.

The Euro (EUR) now gathers renewed steam against the US Dollar (USD), encouraging EUR/USD to resume the earlier advance and climb to three-day highs past 1.0840 on Tuesday.

All of the sudden, the Greenback rapidly abandons the area of two-day highs around 104.40 when tracked by the USD Index (DXY) in response to discouraging prints from the US docket, while the resumption of the decline in US yields across different maturities also adds to the dollar's retracement. In the meantime, speculation of the Federal Reserve (Fed) pausing its interest-rate hiking cycle at the September meeting and opting for a quarter-point rate hike in November continue to run high among traders.

Looking at the broader picture, there is a renewed discourse regarding monetary policy, specifically the Fed's dedication to maintaining a more stringent approach for a prolonged period. This heightened attention stems from the remarkable resilience exhibited by the US economy, even in the face of a slight easing in the job market and declining inflation figures observed in recent months.

Across the pond, internal conflicts among members of the European Central Bank (ECB) governing council are emerging regarding the possibility of extending the restrictive policy stance beyond the summer season. These differences of opinion are contributing to persistent uncertainty around the central bank and act as a source of potential weakness for the single currency.

On the domestic data space, Consumer Confidence in Germany worsened to -25.5 when tracked by GfK for the month of September, while Consumer Confidence in France held steady at 85 in August.

In the US, the Conference Board said the Consumer Confidence dropped to 106.1 in August, while JOLTS Job Openings retreated to 8.827M individuals in July. Earlier, the FHFA House Price Index rose at a monthly 0.3% in June.

Daily digest market movers: Euro looks reinvigorated on US data

  • The Euro rose to three-day peaks against the USD.
  • German, US bond yields now look southwards.
  • The US labour market, inflation figures take centre stage this week.
  • Japanese jobless rate ticked higher in July.
  • Fed’s tighter-for-longer narrative keeps running in the background.
  • The probability of a Fed’s 25 bps rate raise in November hovers around 50%.

Technical Analysis: Euro's upside remains limited by 1.0930 

Further declines could motivate EUR/USD to revisit Friday's low of 1.0765, ahead of the May 31 low of 1.0635 and the March 15 low of 1.0516. The loss of this level could prompt a test of the 2023 low at 1.0481 seen on January 6 to reemerge.

Occasional bouts of strength should meet provisional resistance at the 55-day Simple Moving Average (SMA) at 1.0965, prior to the psychological 1.1000 barrier and the August 10 high at 1.1064. Once the latter is cleared, spot could challenge 1.1149 from July 27. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 seen on July 18. Further up comes the 2022 high at 1.1495, which is closely followed by the round level of 1.1500.

Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA (1.0807) is breached in a convincing fashion.

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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