Euro retreats to daily lows near 1.0660

  • The Euro accelerate its losses against the US Dollar.
  • European stocks en route to a negative close on Tuesday.
  • Germany Industrial Production surprised to the downside.

The Euro (EUR) continues its decline against the US Dollar (USD) from Monday, causing EUR/USD to retreat to lows not seen in two days, hovering around 1.0660 on Tuesday.

The Greenback, on the other hand, manages to regain its strength and pushes the USD Index (DXY) to levels around the 105.70-105.80 band. This strengthening of the Greenback is attributed to a renewed decrease in risk appetite, especially in response to weaker trade data from China. The downward movement in the pair is also accompanied by a marginal uptick in both US and German bond yields.

Regarding monetary policy, markets expect the Federal Reserve (Fed) to keep policy unchanged. The potential for an interest-rate hike in December appears to have lost momentum, particularly after the latest FOMC gathering and Friday's publication of weaker-than-anticipated Nonfarm Payrolls data for October.

As for the European Central Bank (ECB), investors also favour an extended pause of its rate-hiking cycle, most probably until the second half of next year.

On the economic calendar, German Industrial Production contracted more than estimated at a monthly 1.4% in September and 3.7% vs. the same month of 2022. In addition, German Construction PMI receded to 38.3 in October. Looking at the broader eurozone, the Construction PMI ticked lower to 42.7 during last month and Producer Prices rose at a monthly 0.5% in September and dropped 12.4% over the last twelve months.

Across the Atlantic, Balance of Trade results showed a $61.5B deficit in September, while the IBD/TIPP Economic Optimism index and Consumer Credit Change are both due later in the session.

Additionally, market participants are expected to closely follow speeches by FOMC Governor Michael Barr (permanent voter, centrist), FOMC Governor Christopher Waller (permanent voter, hawk), NY Fed President John Williams (permanent voter, centrist), Dallas Fed President Lorie Logan (voter, hawk), Minneapolis Fed President Neel Kashkari (voter, centrist) and Chicago Fed President Austan Goolsbee (voter, centrist).

Daily digest market movers: Euro appears depressed well south of 1.0700

  • The EUR slips back to the 1.0660 region against the USD.
  • US and German yields trade on the defensive so far on Tuesday.
  • The Fed is seen keeping its monetary policy unchanged in December.
  • Chicago Fed A. Goolsbee argued that the economy is weakening.
  • Minneapolis Fed N. Kashkari ruled out rate cuts for the time being.
  • The ECB is likely to keep its rates unchanged until H2 2024.
  • The Middle East conflict looks everything but abated.
  • The RBA raised its OCR by 25 bps, as widely expected.
  • Chinese trade balance figures disappoint in October.

Technical Analysis: Euro could retest the 1.0650 zone near term

EUR/USD corrects lower and slips back to the area below the 1.0700 yardstick on Tuesday.

The November peak of 1.0754 (November 6) follows next on the upswing for EUR/USD, seconded by the crucial 200-day Simple Moving Average (SMA) at 1.0805 and another weekly top of 1.0945 (August 30) before the psychological barrier of 1.1000. Beyond this zone, the pair may encounter resistance at the August high of 1.1064 (August 10), ahead of the  weekly peak of 1.1149 (July 27) and the 2023 high of 1.1275 (July 18).

Sellers, on the other hand, are anticipated to face support at the weekly low of 1.0495 (October 13), before approaching the 2023 bottom at 1.0448 (October 15) and the round number of 1.0400.

The pair's outlook is predicted to remain bearish as long as it remains below the 200-day SMA.

(This story was corrected on November 7 at 09:14 GMT to say, in the fourth graph, that investors favour the ECB to keep interest rates unchanged until the second half of next year.)

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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