Euro turns negative around 1.0850 as risk appetite shrinks

  • Euro falters just ahead of the 1.0900 hurdle vs. the US Dollar.
  • No changes to the negative performance of stocks in Europe.
  • EUR/USD faces extra pressure following a failed attempt to surpass 1.0900.
  • EMU Retail Sales came in short of expectations in May.
  • US ADP report more than doubled initial estimates in June.

The Euro (EUR) now comes under pressure and gives away the earlier recovery attempt to the 1.0900 neighbourhood vs. the US Dollar (USD) on Thursday.

Meanwhile, the Greenback manages to regain some balance and motivates the USD Index (DXY) to once again return above the key 103.00 hurdle helped by the positive backdrop of further upside in US yields across the curve, as market participants keep digesting the release of the FOMC Minutes of the June 14 gathering (Wednesday).

In terms of monetary policy, there are no major updates, and investor expectations remain stable regarding an anticipated 0.25% interest rate hike from both the European Central Bank (ECB) and the Federal Reserve (Fed) at their respective upcoming meetings later this month.

In the euro docket, Factory Orders in Germany expanded more than expected at a monthly 6.4% in May, while Retail Sales in the whole euro area came in flat MoM in May and contracted 2.9% from a year earlier.

Across the pond, data releases in the US labour market saw the ADP Report add 497K jobs in June (vs. 228K) expected, the weekly Initial Jobless Claims rise by 248K in the week to July 1 and Challenger Job Cuts drop by 40.709K during last month. In addition, the trade deficit narrowed to $69B in May. Finally, the ISM Services PMI improved to 53.9 in June and JOLTs Job Openings dropped to 9.8M in May.

Daily digest market movers: Euro looks depressed around 1.0850

  • The Euro fades the initial attempt to revisit the 1.0900 mark.
  • Risk appetite trends lend marked support to the pair so far.
  • Germany's Factory Orders surprised to the upside in May.
  • Investors still see a Fed, ECB rate hike in July as the most likely scenario.
  • NY Fed John Williams said there is still job to be done regarding rates.
  • The US labour market remains (very?) tight.
  • ISM Services PMI surpassed consensus in June.
  • JOLTs Job Openings shrank by 9.8M in MAy
  • Dallas Fed Lorie Logan favoured extra hikes.

Technical Analysis: Euro poised for a deeper decline

EUR/USD keeps failing to gather serious pace, while the door remains wide open to extra losses in the short-term horizon. The pair could see its downward bias alleviated once it clears the June high at 1.1012.

That said, the loss of the weekly low at 1.0833 (July 6) could pave the way to a test of the transitory 100-day SMA at 0824. The breakdown of the latter should meet the next contention area not before the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).

If bulls regain the upper hand, the next hurdle is then expected at the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.

The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 0613.

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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