Euro pushes harder and retargets the 1.0600 region, looks at Powell

  • The Euro gathers impulse and climbs to 1.0580 against the US Dollar.
  • Stocks in Europe keep the negative tone so far on Thursday.
  • The USD Index (DXY) comes under pressure and weakens to 106.30.
  • Investors’ attention is expected to be on Fed Chairman Jerome Powell speech.

The Euro (EUR) manages to gather some fresh impulse against the US Dollar (USD), lifting EUR/USD to daily peaks around 1.0580 during the European afternoon on Thursday.

The Greenback faces some selling bias and recedes to the 106.30 zone when gauged by the USD Index (DXY) amidst some loss of momentum in US yields across different maturities. Furthermore, investors maintain a  cautious approach ahead of the speech by Federal Reserve (Fed) Chair Jerome Powell and the ongoing geopolitical effervescence.

Keeping the focus on monetary policy, investors presently expect the Fed to maintain its posture of not making any interest rate changes for the rest of the year.

Meanwhile, financial market investors are considering the likelihood of the European Central Bank (ECB) also ending its rate-hiking cycle, despite inflation levels beyond the bank's objective and rising fears about the possibility of an economic slowdown or stagflation.

Back to the domestic calendar, Business Confidence among manufacturers in France fell to 98 in October.

In the US docket, Chair Powell will discuss the economic outlook at the Economic Club of New York, while FOMC Vice-Chair Philip Jefferson (permanent voter, centrist), Chicago Fed President Austan Goolsbee (voter, centrist), Atlanta Fed President Raphael Bostic (2024 voter, centrist), FOMC Vice Chair Michael Barr (permanent voter, centrist), and Philadelphia Fed President Patrick Harker (voter, hawk) are all due to speak later in the North American session.

Additionally, Initial Jobless Claims increased by 198K in the week to October 14 and the Philly Fed Manufacturing Index improved to -9 in Ocotober. Later in the session, the CB Leading Index, Existing Home Sales, and the Monthly Budget Statement are all due.

Daily digest market movers: Euro advances further and approaches 1.0600

  • The EUR accelerates its advance against the USD.
  • US and German yields now give away part of the earlier gains.
  • Markets are focused on the Fed's tightening-for-a-longer-period approach.
  • Investors believe the ECB will hold off on tightening until Q3 2024.
  • Geopolitical concerns in Middle East remain on the rise.
  • Australian jobs report came in mixed in September.
  • All the attention will be on Powell’s speech later on Thursday.

Technical Analysis: Euro shifts the focus to 1.0640

The EUR/USD is trading indecisively around 1.0540 against the backdrop of the Greenback's lack of direction.

If the upward trend continues, EUR/USD may test the October 12 high of 1.0639, prior to the September 20 top of 1.0736 and the important 200-day Simple Moving Average (SMA) of 1.0819. A break above this level might indicate a push to break over the august 30 peak of 1.0945 and target the psychological threshold of 1.1000. Any more rises over the August 10 high of 1.1064 might push the pair towards the top of 1.1149 seen on July 27 and perhaps the 2023 peak of 1.1275 from July 18.

If selling pressure returns, the 2023 low of 1.0448 from October 3 and the key support of 1.0400 may be revisited. If this level is breached, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 may be retested (November 21, 2022).

The risk of sustained negative pressure persists as long as the EUR/USD remains below 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.

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