Euro now looks offered near 1.0500 on Dollar's bounce
- The Euro reverses its daily against the US Dollar.
- Stocks in Europe en route to close Friday's session with gains.
- EUR/USD hovers around 1.0500 following firmer US NFP.
- The USD Index (DXY) gathers fresh traction post-Payrolls.
- Factory Orders in Germany expanded in August.
- The US Nonfarm Payrolls nearly doubled estimates in September.
The Euro (EUR) now sees its earlier optimism trimmed against the US Dollar (USD), motivating EUR/USD to return to the negative territory and challenge the key support at 1.0500 the figure at the end of the week. Following the current price action, spot should close its 13th consecutive week in the red territory.
Meanwhile, the Greenback picks up pace and revisits the 106.80 when tracked by the USD Index (DXY) on the back of the post-NFP bounce in US yields across different time frames and renewed speculation of a rate hike by the Fed before year-end.
In terms of monetary policy, investors now see the Federal Reserve (Fed) raising its interest rates before the end of the year. At the same time, market speculation continues about the European Central Bank (ECB) potentially pausing policy adjustments, despite inflation levels surpassing the bank's target and growing concerns about a future recession or stagflation in the region.
On the euro calendar, Factory Orders in Germany expanded at a monthly 3.9% in August, while Retail Sales in Italy contracted 0.4% on month also in August.
In the US data space, Nonfarm Payrolls rose by 336K jobs in September and the Unemployment Rate held steady at 3.8%. In addition, Average Hourly Earnings – a proxy for wage inflation – rose 4.2% from a year earlier and the Participation Rate remained unchanged at 62.8%. Later in the session, Consumer Credit Change for the month of August are also due, along with a speech by FOMC Governor Christopher Waller (permanent voter, hawk).
Daily digest market movers: Euro shifts its attention to the downside
- The EUR comes under renewed downside pressure and pierces 1.0500 vs. the USD.
- The rebound in US and German yields gather extra steam on Friday.
- Investors’ bets for a 25 bps rate hike by the Fed now appear on the rise.
- Markets see the ECB pausing its hiking campaign.
- ECB’s Isabel Schnabel does not rule out a mild recession.
- ECB's Bostjan Vasle said rates are very close to their peak.
- ECB's Boris Vujcic argued the bank is on a good track (to where?).
- German government projects a 0.4% contraction of the economy in 2023.
- Market talks about FX intervention in USD/JPY appear unabated.
Technical Analysis: Euro remains vulnerable to further losses
EUR/USD regains traction, advancing further north of 1.0500 on Friday.
The potential resumption of selling pressure on EUR/USD may lead to a revisit of the 2023 low at 1.0448 (October 3), with the possibility of testing the significant round level of 1.0400. If this level is surpassed, it could open the door for a potential retest of the weekly lows at 1.0290 (November 30, 2022), and 1.0222 (November 21, 2022).
On the other hand, if the pair continues to gain momentum, it could target the next upside barrier at 1.0617 (September 29), followed by the critical 200-day SMA at 1.0823. Breaking beyond this level might lead to a test of the weekly top of 1.0945 (August 30), before the psychological threshold of 1.1000. Should the pair trespass the weekly peak of 1.1064 (August 10), it could encounter another weekly top at 1.1149 (July 27) and even the 2023 high at 1.1275 (July 18).
However, as long as the EUR/USD remains below the 200-day SMA, there is a possibility of further bearish pressure.
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.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
