Euro challenges weekly peaks above 1.0700, looks at FOMC
- The Euro remains well bid vs. the US Dollar.
- Stocks in Europe are on their way to a positive close.
- EUR/USD surpasses once again the 1.0700 hurdle.
- The USD Index (DXY) breaks below the 105.00 yardstick.
- The Fed is expected to keep rates unchanged later on Wednesday.
- ECB’s Enria, Schnabel, Jochnick, McCaul, Elderson are due to speak.
The Euro (EUR) has recovered from Tuesday's pullback against the US Dollar (USD), allowing EUR/USD to regain stability and surpass 1.0700 level on Wednesday.
Meanwhile, the Greenback is trading with uncertainty near the 105.00 yardstick, as indicated by the USD Index (DXY). Market participants are exercising caution ahead of the crucial FOMC meeting scheduled for the North American session.
Market participants widely anticipate the Fed holding its interest rates steady amidst rising speculation of rate cuts at some point in Q2 2024.
In the European calendar, New Car Registrations in the European Union (EU) expanded 21.0% in the year to August, and Producer Prices in Germany rose 0.3% MoM in August and contracted 12.6% compared with the same month a year earlier.
In the US, MBA's Mortgage Applications rose 5.4% in the week to September 15, while the EIA will publish its weekly report on US crude oil supplies later in the session.
Daily digest market movers: Euro looks firm prior to the Fed
- The EUR gathers renewed buying interest against the USD.
- The knee-jerk in US and German yields picks up pace.
- Consensus among economists see the Fed keeping rates unchanged on Wednesday.
- The PBoC kept its 1-Year and 5-Year Loan Prime Rate (LPR) unchanged.
- Markets continue to factor in probable rate cuts by the Fed in H1 2024.
- An impasse in the ECB’s hiking cycle appears to be gathering traction.
- UK inflation came in short of estimates in August.
Technical Analysis: Euro's stance remains negative below 1.0830
EUR/USD resumes the upside amidst the broader weekly choppiness and is expected to challenge the key 1.0700 region.
In case EUR/USD breaches its September 14 low of 1.0631, there is a possibility that it may revisit the March 15 low of 1.0516 ahead of the 2023 bottom of 1.0481 from January 6.
On the upside, there is a minor resistance level at the September 12 high of 1.0767 prior to the more relevant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could continue its recovery to the temporary 55-day SMA at 1.0916, ahead of the August 30 top of 1.0945. The surpass of the latter could put a potential visit to the psychological level of 1.1000 back on the radar seconded by the August 10 peak of 1.1064. North from here, the pair could retest the July 27 high at 1.1149, before the 2023 top at 1.1275 seen on July 18.
As long as the EUR/USD remains below the 200-day SMA, there is a possibility that the pair may continue to experience downward pressure.
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
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
