Euro grinds higher above 1.1600, traders await ECB rate decision, US inflation data

EUR/USD gains ground to around 1.1630 in Wednesday’s early Asian session.
ECB is set to raise its benchmark interest rates by 25 bps at its next policy meeting on Thursday.
The key US inflation reports will be in the spotlight later this week.

Lallalit Srijandorn FXStreet

The EUR/USD pair gains traction to near 1.1630 during the early Asian trading hours on Wednesday. Expectations of a rate hike from the European Central Bank (ECB) provide some support to the Euro (EUR) against the US Dollar (USD). ECB President Christine Lagarde is set to speak later in the day.

The ECB is widely expected to hike interest rates at its September policy meeting on Thursday, driven by surging energy prices due to the ongoing US-Iran conflict. Traders have fully priced in a 25 basis point (bps) move to 2.5% as the latest data shows Eurozone inflation rose back above 3% in August.

"We expect the ECB to hike rates by 25 basis points. Another insurance rate hike," said ING's global head of macro Carsten Brzeski. "Or for those who don’t like this term: a dovish rate hike,” Brzeski added.

Traders await key US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data, due later this week. These reports may shed fresh light on the Federal Reserve’s (Fed) next steps at their September 14-15 meeting. Any signs of hotter inflation in the US could lift the Greenback and act as a headwind for the major pair.

Euro upside bias holds as EUR/USD seen confined to tight range

Analysts at UOB Group maintain a constructive but measured stance on EUR/USD over the coming weeks. They recall that in their most recent narrative last Friday, when spot was at 1.1635, they noted that the strong surge from the prior Thursday “suggests the bias has shifted to the upside, but upward momentum is not that strong for now, and any advance could stay within a 1.1585/1.1690 range.” Updating their view on Monday with spot around 1.1625, they reiterated that “the upside bias remains intact, but EUR should stay within a narrower range of 1.1585/1.1670.” UOB says it “continue[s] to hold the same view,” indicating that while the Euro retains an upside tilt, gains are still expected to be contained within these defined parameters.

Technical Analysis: EUR/USD keeps a bullish vibe above the key 100-day SMA

In the daily chart, EUR/USD holds a constructive near-term bullish bias as the pair stabilizes above the Bollinger middle band and the 100-day moving average. The lower Bollinger band reinforces a broad demand zone under the market, while the upper band caps the immediate topside. The Relative Strength Index (14) near 57 suggests positive but not overstretched momentum, hinting that buyers still retain the upper hand as long as price holds above the mid-band support.

On the downside, initial support is located at the Bollinger middle band near 1.1622, followed by the 100-day moving average around 1.1560 and the lower Bollinger band close to 1.1538, where a deeper pullback would likely encounter stronger demand. On the topside, the first notable resistance is the upper Bollinger band around 1.1705, and a daily close above this barrier would open the door for an extension of the current rebound phase toward higher highs in the coming sessions.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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