- The Euro now appears bid against the US Dollar.
- European equities exepcted to end Thursday's session with gains.
- Fed’s Powell, ECB’s Lagarde take centre stage later in the session.
The Euro (EUR) now manages to regain some composure against the US Dollar (USD), encouraging EUR/USD to pierce the key barrier at 1.0700 the figure on Thursday.
In the meantime, the Greenback abandons the area of daily highs near 105.70 when tracked by the USD Index (DXY) on the back of vacillating risk appetite trends and rising prudence prior to Federal Reserve (Fed) Chair Jerome Powell’s event later in the European evening.
In terms of monetary policy, there is an increasing consensus among market participants that the Fed is likely to maintain its present monetary stance unchanged in the next few months. The possibility of an interest rate hike in December has lost some momentum, particularly following the recent FOMC meeting and the publication of weaker-than-expected Nonfarm Payrolls data for October.
A similar sentiment can be observed regarding the European Central Bank (ECB), although the recent hawkish narrative from some rate setters seems to have left the door open to further tightening in the short-to-medium term.
In the domestic calendar, President Christine Lagarde will speak in Brussels at 17:30 GMT.
In the US, Fed Chairman Jerome Powell will participate in a Policy Panel Discussion at 19:00 GMT. Data-wise, Initial Jobless Claims rose by 217K in the week to November 4. Later in the session, Atlanta Fed President Raphael Bostic (2024 voter, centrist) and Richmond Fed President Thomas Barkin (2024 voter, centrist) are also due to speak.
Daily digest market movers: Euro reclaims 1.0700 ahead of key events
- The EUR extends the rebound beyond 1.0700 against the USD.
- US and German yields resume the upside on Thursday.
- Markets expect the Fed to continue its current monetary policy in December.
- The ECB looks to be planning a protracted pause until H2 2024.
- ECB Vice President Luis de Guindos says rates cut chatter is premature.
- Geopolitical concerns in the Middle East continue unabated.
- Chinese CPI fell 0.2% in the year to October.
- BoJ’s Kazuo Ueda favoured the continuation of the current policy stance.
Technical Analysis: Euro risks extra losses once 1.0645 is breached
EUR/USD navigates a consolidative range around the 1.0700 neighbourhood on Thursday.
If the selling pressure persists, EUR/USD may return to the weekly low of 1.0495 (October 13), ahead of the 2023 bottom at 1.0448 (October 15) and the round number of 1.0400.
On the upside, the November high of 1.0754 (November 6) stands in the way of the crucial 200-day Simple Moving Average (SMA) at 1.0801 and another weekly top of 1.0945 (August 30). The psychological threshold of 1.1000 is aligned north of here, before the August peak of 1.1064 (August 10) and the weekly high of 1.1149 (July 27), all preceding the 2023 top of 1.1275 (July 18).
The pair's outlook remains negative as long as it trades 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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