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Euro climbs to daily highs near 1.0920 prior to De Guindos speech, US PMIs

  • The Euro accelerates its advance against the US Dollar.
  • European stocks trade mostly with gains on Friday.
  • Germany Business Climate improved marginally in November.

The Euro maintains its bullish momentum against the US Dollar, prompting EUR/USD to build on Thursday’s gains just beyond 1.0900 at the end of the week.

On the other hand, the Greenback appears mildly offered around 103.70 according to the USD Index (DXY), a region also coincident with the critical 200-day SMA.

In the meantime, volatility is expected to remain at low levels following the US Thanksgiving Day holiday on Thursday and Friday’s shortened trading session.

The US Dollar has managed to rebound earlier in the week despite the prevailing expectation of a potential interest rate cut by the Federal Reserve (Fed) at some point in the spring of 2024. This view remains well supported by persistent disinflationary pressures and the ongoing easing of the labour market.

On the European docket, final GDP Growth Rate figures showed the German economy shrank 0.1% QoQ and 0.4% over the last twelve months. Still in Germany, the Business Climate index improved to 87.3 in November, according to the IFO institute.

Shifting the focus to the European Central Bank (ECB), its President Christine Lagarde stated that progress was being observed in terms of inflation. She mentioned that significant actions had already been taken regarding interest rates and that the situation could now be monitored. Still around the bank, Vice-President Luis De Guindos is due to speak later in the session.

Across the pond, preliminary Manufacturing and Services PMIs will be the sole release on Friday.

Daily digest market movers: Euro extends the recovery beyond 1.0900

  • The EUR adds to recent gains against the USD.
  • US and German yields edge higher early on Friday.
  • Investors are still assessing the Fed's rate reduction in 2024.
  • Markets believe the ECB will keep its policy unchanged until early next year.
  • ECB's Lagarde stressed that the battle to tackle inflation is far from over.
  • Business Climate in Germany improves a tad in November.
  • BoE’s Huw Pill argued that economic activity and job growth are softening.

Technical Analysis: Euro's longer-term target emerges at 1.1000

EUR/USD maintains the slightly bid bias above the 1.0900 hurdle at the end of the week.

The November high of 1.0965 (November 21) represents the immediate target for bulls ahead of the key 1.1000 threshold. Further north, EUR/USD may encounter resistance at the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), both preceding the 2023 high of 1.1275 (July 18).

Meanwhile, any corrective declines should find first support at the major 200-day Simple Moving Average (SMA) at 1.0809, followed by the temporary 55-day SMA at 1.0658. The weekly low of 1.0495 (October 13) aligns just below here, before the 2023 low of 1.0448 (October 3).

Overall, the pair's prospects should remain positive as long as it remains above the 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.

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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