Euro climbs to fresh 2023 peaks around 1.1100

  • Euro gathers fresh steam and rises to new YTD highs vs. the US Dollar.
  • Stocks in Europe on their way to another positive close on Wednesday.
  • EUR/USD climbs to new highs around the 1.1100 level.
  • Final CPI in Spain came in below 2% in June.
  • US CPI surprised to the downside in June.

The Euro (EUR) regains further upside traction and advances to new peaks vs. the US Dollar (USD), lifting EUR/USD to the 1.1100 zone on Wednesday. In fact, the intense sell-off in the Greenback forces the USD Index (DXY) to retreat further and confront the YTD lows around 100.80.

In the meantime, extra upside in the pair and in the risk-associated universe in general, gathers impulse after US inflation figures showed the CPI rising at an annualized 3.0% and 4.8% when it comes to the Core CPI (prices excluding food and energy costs), both prints coming in below initial estimates and consolidating the multi-month disinflationary pressures in the US economy.

Considering these results, investors' bet for an end of the Fed's hiking campaign later in the year now appear on the rise despite a 25 bps rate hike at the July 26 gathering appears fully anticipated.

The European Central Bank (ECB) is expected to follow suit and raise its policy rates by a quarter percentage point later in the month.

Reinforcing the ECB's stance still appears to be the omnipresent hawkish narrative from the rate setters, who keep favouring further tightening in a context where inflation in the euro area continues to run high and well above the bank's target.

In the domestic data space, final inflation figures in Spain showed the CPI rose 1.9% in the year to June and 0.6% vs. the previous month.

In the US, other than the Inflation Rate, MBA will report on Mortgage Applications in the week to July 7, and the Fed will release its Beige Book. In addition, Atlanta Fed Raphael Bostic (2024 voter, hawk), and Cleveland Fed Loretta Mester (2024 voter, hawk) are also due to speak later on Wednesday.

Daily digest market movers: Euro poised to further gains near term

  • The EUR clinches a new 2023 peak around 1.1100 vs. the USD.
  • The USD extends the drop to 2-month lows in the sub-101.00 zone.
  • RBA's Phillip Lowe said further hikes might be needed.
  • BoE's Bailey notes some cooling in the UK labour market.
  • US, German yields trade on the defensive following US CPI.
  • Investors continue to see a 25 bps rate hike by the Fed, ECB in July.
  • US Core CPI rose 4.8% YoY in June.

Technical Analysis: Euro now shifts the attention to 1.1184

A convincng surpass of the 2023 high of 1.1100 (July 12) should pave the way for a move to the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.

On the downside, the weekly low at 1.0833 (July 6) appears reinforced by the provisional 100-day SMA. The breakdown of this region should meet the next contention area not before the May low of 1.0635 (May 31), which remains also propped up by the crucial 200-day SMA (1.0636). South from here emerges the March low of 1.0516 (March 15) prior to the 2023 low of 1.0481 (January 6).

Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.

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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