Euro fades the rebound and resumes the decline with initial target at 1.0900
- Euro meets support near 1.0900 vs. the US Dollar.
- Stocks in Europe keep the downbeat mood as the session is about to end.
- EUR/USD remains under pressure and a breach of 1.0900 appears in store.
- The upside in the USD Index (DXY) falters just ahead of the 103.00 level.
- Chinese Caixin PMI prints showed mixed results in July.
- Final Services PMIs in Germany and the euro area came in mixed.
- The key ISM Services PMI takes centre stage later in the US calendar.
The Euro (EUR) quickly relinquishes the earlier bounce off multi-week lows against the US Dollar (USD), as EUR/USD maintains the bearish performance with the immediate magnet at lows in the 1.0910 region, an area also coincident with the interim 55-day and 100-day SMAs.
Meanwhile, the Greenback has been performing well and maintaining its rally, pushing the USD Index (DXY) to flirt with fresh four-week highs around the 103.00 mark on Thursday.
The ongoing surge in DXY is closely linked to the relentless climb in US yields, with the belly and the long end of the yield curve reaching nine-month highs of about 4.20% and 4.30%, respectively.
This week, market participants will be closely monitoring important economic data releases from both the US and Europe, which are expected to challenge the recently emphasized data-dependency approach adopted by the Federal Reserve and the European Central Bank (ECB) in their interest rate decisions.
In terms of domestic data, Germany's trade surplus widened to €18.7B in June, while the final Services PMIs in Germany and the broader Eurozone came in at 52.3 and 50.9, respectively, during the previous month.
Meanwhile, in the US, usual weekly Initial Jobless Claims rose by 227K in the week to July 29, while the final S&P Global Services PMI came in at 52.0. In addition, Factory Orders and the ISM Services PMI are both slated for release later in the session.
Daily digest market movers: Euro lacks conviction to attempt a rebound
- The EUR refocuses on the downside and on 1.0900 vs. the USD.
- The USD Index keeps the bid bias well and sound near 103.00.
- The BoE hiked rates by 25 bps, as widely expected, and lifted the policy rate to 5.25%.
- Speculation that the Fed might have ended its hiking cycle keeps running high.
- The BoJ intervened in the bonds market in response to JGB 10-year yields surge.
- Market focus remains on the US labour market this week.
Technical Analysis: Euro could see the downside retest 1.0830
EUR/USD keeps the selling pressure in place near the 1.0900 region and remains vulnerable to extre decline in the short-term horizon.
The loss of the 1.0910 region, where the provisional 55-day and 100-day SMAs converge, leaves EUR/USD vulnerable to a probable drop to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0737 and the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).
On the other hand, occasional bullish attempts could motivate the pair to initially dispute the weekly top at 1.1149 (July 27). Above this level, the downside pressure could mitigate somewhat and encourage the pair to test the 2023 high at 1.1275 (July 18). Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 (February 10), which is closely followed by the round level of 1.1500.
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 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
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
