Euro remains under pressure near the 1.0600 region, looks at US calendar
- The Euro picks up some traction against the US Dollar.
- Stocks in Europe en route to a negative close on Tuesday.
- EUR/USD bounces off multi-moonth lows around 1.0570.
- The USD Index (DXY) gives away some gains following new YTD tops.
- US Consumer Confidence will take centre stage in the American session.
The Euro (EUR) manages to regain some balance against the US Dollar (USD), encouraging EUR/USD to rebound from six-month lows around 1.0570 and trespassing the key barrier at 1.0600 the figure on Tuesday.
On the other hand, the Greenback sheds some ground after hitting new 2023 peaks in levels last traded in late November 2022 around 106.20 when measured by the US Dollar Index (DXY).
The pair's recovery comes in tandem with some corrective knee-jerk in US yields across different time frames, while the German 10-year bund yields also recede from earlier twelve-year peaks above 2.80%.
Looking at the macro scenario, the dollar’s sharp upside momentum remains propped up by expectations of the US Federal Reserve (Fed) view of keeping interest rates higher for longer. This stance was particularly exacerbated at the central bank's latest meeting on September 20.
As for the European Central Bank (ECB), recent board members found shared agreement towards a potential prolonged impasse in its hiking cycle despite the fact that inflation significantly exceeds the bank's target.
In the US docket, the Conference Board’s Consumer Confidence gauge will be in the limelight, along with New Home Sales, the FHFA’s House Price Index and the speech by FOMC’s permanent voter, Michelle Bowman (hawk).
Daily digest market movers: Euro meets temporary contention around 1.0570
- The EUR meets some contention near 1.0570 against the USD.
- US and German yields retreat from multi-year peaks.
- Markets expect the Fed to hike rates by 25 bps before end of 2023.
- Investors see potential interest rate cuts by the Fed in Q3 2024.
- Talks of a pause by the ECB remain on the rise.
- ECB's Gediminas Simkus deems talks of rate cuts as premature.
- ECB's Madis Muller ruled out further rate hikes.
- Intervention fears surround the price action around USD/JPY.
Technical Analysis: Euro keeps the door open to further downside
The selling pressure around EUR/USD remains everything but abated for yet another session, leaving the door wide open to further retracement in the short-term horizon.
On the downside, EUR/USD faces immediate support at the March 15 low of 1.0516, followed by the 2023 low of 1.0481 seen on January 6.
In terms of potential resistance levels, a minor hurdle lies at the September 12 high of 1.0767, followed by a more significant barrier at the 200-day Simple Moving Average (SMA) at 1.0828. A break above this level could open the path for further recovery, targeting the temporary 55-day SMA at 1.0890, with the possibility of reaching the August 30 high of 1.0945. Surpassing this level could shift the focus to the psychological level of 1.1000, prior to the August 10 peak of 1.1064. Beyond that, the pair may retest the July 27 top at 1.1149 and potentially reach the 2023 high at 1.1275 from July 18.
As long as EUR/USD remains below the 200-day SMA, there is a possibility that downward pressure will persist.
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.
