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Euro keeps the narrow range below 1.0700

  • The Euro navigates the 1.0680 region vs. the US Dollar.
  • European stocks maintain the positive performance on Monday.
  • US inflation figures will drive the market sentiment this week.

The Euro (EUR) loses its initial shine against the US Dollar (USD), dragging EUR/USD to the area of daily lows around 1.0670 at the beginning of the week.

On the flip side, the Greenback leaves behind Friday's pullback and resumes the upside to the boundaries of the key barrier of 106.00 the figure when tracked by the USD Index (DXY) on Monday. The so far uptick in the index comes on the back of a modest improvement in US yields across the curve. Furthermore, the divergence between recent hawkish Fedspeak and investors’ perceptions of a protracted pause in the Federal Reserve’s (Fed) normalization programme is expected to dictate the price action around the US dollar for the time being.

Around the European Central Bank (ECB), there was nothing new in recent comments from Christine Lagarde. The ECB president reiterated that inflation remains too elevated and that the bank should bring inflation down to its target in a timely fashion and maintain the current restrictive stance for a longer period.

Daily digest market movers: Euro falters once again around the 1.0700 barrier

  • The EUR comes under pressure after piercing 1.0700 against the USD.
  • US and German yields trade with humble gains on Monday.
  • Investors expect the Fed to refrain from hiking rates in December.
  • The ECB is seen entering an impasse in its tightening campaign.
  • ECB's Vice President Luis De Guindos notes domestic price pressures remain strong.
  • Geopolitical effervescence remains unabated in the Middle East.
  • Japan's finmin Suzuki reiterated sudden FX moves are undesirable.
  • Markets’ attention should remain on US CPI and PPI.

Technical Analysis: Euro's outlook remains bearish below 1.0800

EUR/USD faces renewed selling pressure following another failed attempt to surpass the 1.0700 mark on Monday.

Further recovery could see EUR/USD revisit the November top of 1.0754 (November 6) prior to the 200-day Simple Moving Average (SMA) at 1.0801 and the weekly peak of 1.0945 (August 30). The psychological level of 1.1000 comes next ahead of the August high of 1.1064 (August 10) and another weekly top of 1.1149 (July 27), all preceding the year-to-date peak of 1.1275 (July 18).

If sellers regain the upper hand, the pair might initially face transitory contention at the 55-day SMA at 1.0640 ahead of the weekly low of 1.0495 (October 13) and the 2023 low of 1.0448 (October 15).

Further weakness in the pair remains on the cards while 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.

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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