Euro remains offered, as ECB Forum event is under way


  • The Euro extends the decline amidst a firmer US Dollar.
  • Stocks in Europe advance at a firm pace on Wednesday.
  • EUR/USD hovers around the 1.0925/20 band amidst persistent risk-off mood.
  • Germany’s Consumer Confidence worsens in July.
  • Investors will closely follow events from the ECB Forum.

The recent two-day advance of the Euro (EUR) was somewhat limited due to renewed buying interest in the US Dollar (USD), leading to a partial retracement of the weekly gains for EUR/USD. As a result, the pair revisited the 1.0930/25 region on Wednesday following the re-emergence of the risk-off sentiment among market participants.

The positive performance of the Greenback also provided some relief to the USD Index (DXY), which had experienced negative performance earlier in the week. That said, the index manages to regain traction and trade at shouting distance from the key 103.00 barrier ahead of the opening bell in Wall Street.

The current knee-jerk in the pair comes along a tepid retracement in both the US and German yields so far, all amidst expectations of a quarter-point interest rate hike by both the European Central Bank (ECB) and the Federal Reserve (Fed) at their respective meetings in July.

Moving forward, the potential future actions of the Fed and the ECB in normalizing their monetary policies remain a topic of ongoing debate. This discussion takes place against the backdrop of increasing speculation about an economic slowdown on both sides of the Atlantic.

During the Policy Discussion Panel at the ECB Forum on Central Banking in Sintra, there were several remarks made regarding monetary policy. ECB President Christine Lagarde reiterated that a rate hike in July is highly probable. Meanwhile, BoE Governor Andrew Bailey acknowledged that the UK economy is proving to be more robust than anticipated despite persistent inflation. Additionally, Chief Jerome Powel argued that policy has not been restrictive for a significant period, and BoJ Governor Kazuo Ueda suggested that wage inflation consistent with the inflation goal is well above the bank's 2.0% target.

In terms of data, consumer confidence in Germany, as measured by GfK, weakened to -25.4 for the month of July. In Italy, preliminary inflation figures see the CPI rising 6.4% YoY in June, coming in short of expectations and lower than May's 7.6% yearly advance.

Across the Atlantic, Mortgage Applications tracked by the Mortgage Bankers Association (MBA) expanded 3.0% in the week to June 23, while the 30-Year Mortgage Rate ticked higher to 6.75% (from 6.73%). In addition, the preliminary figures for the Goods Trade Balance showed a $91.13B deficit for the month of May (vs. April's $97.1B).

Daily digest market movers: Euro seems unfazed by central banks' event

  • The EUR faces incresing selling pressure in response to USD recovery.
  • Germany’s Consumer Confidence disappoints expectations in July.
  • ECB’s Vice-President Luis De Guindos favours a rate hike in July.
  • ECB’s Boris Vujcic leaves the door open to a September hike.
  • Board member Bostjan Vasle advocated for further tightening.

Technical Analysis: Euro could enter a consolidative phase near term

EUR/USD appears under pressure and should the selling bias gather impulse it could face initial support at the transitory 55-day SMA at 1.0883. The loss of this level exposes a deeper pullback to the June low at 1.0844 (June 23) ahead of the provisional 100-day SMA at 1.0814. South from here emerges the May low of 1.0635 (May 31) prior to the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).

If bulls regains the upper hand, the next hurdle is then expected at the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1181, just before another round level at 1.1200.

The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0578.

 

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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