Euro bounces of weekly lows near 1.0950 prior to US data
- Euro drops to weekly lows near 1.0950 vs. the US Dollar.
- Stocks in Europe on their way to a negative close on Tuesday.
- EUR/USD remains vulnerable to further weakness near term.
- The USD Index (DXY) climbs to three-week tops near 102.60.
- Final Manufacturing PMIs in the euro area and Germany match the flash prints.
- Germany's jobs report surprised to the upside in July.
- The ISM Manufacturing PMI takes centre stage across the ocean.
During the first half of the week, the Euro (EUR) continued to face selling pressure against the US Dollar (USD), causing EUR/USD to once again decline below the 1.1000 level on turnaround Tuesday.
Meanwhile, the Greenback remained strong and supported the USD Index (DXY) in its move to multi-week highs well past the significant resistance level of 102.00. This strength in the US Dollar persisted on the back of a marked rebound in US yields, particulalry in the belly and the long end of the curve, as well as the overall loss of momentum in the risk-associated universe.
This week, the focus will be on key economic data releases in both the United States and Europe, which will likely test the recently emphasized data-dependence approach adopted by both the Federal Reserve and the European Central Bank (ECB) in their decisions on interest rates.
In Europe, the final Manufacturing Purchasing Managers' Index (PMI) figures in Germany and the broader euro area fell in line with the preliminary readings at 38.8 and 42.7, respectively, for the month of July. In addition, a positive surprise came from the Germany's labour market report in July, as the Unemployment Rate eased to 5.6% and the Unemployment Change shrank by 4k individuals. Later in the session, the jobless rate for the broader Euro area will also be released.
In the United States, the primary focus will be on the ISM Manufacturing PMI, accompanied by the final Manufacturing PMI and Construction Spending data.
Daily digest market movers: Euro keeps the offered bias unchanged
- The EUR loses its grip and challenges the 1.0950 area vs. the USD.
- The USD Index (DXY) climbs to new three-week tops around 102.50.
- Final PMIs matched preliminary estimates in Germany and the the Euro area.
- The German labour market posted firm results during last month.
- The RBA holds rates steady at 4.10%. Signals that further tightening remains on the cards.
- Chinese Caixin Manufacturing PMI drops below 50 in July.
- Market focus remains on the US labour market this week.
Technical Analysis: Euro's deeper decline could see 1.0900 revisited
EUR/USD extends the bearish performance in the first half of the week and revisits the area below the psychological 1.1000 mark on Tuesday.
If bears push harder, EUR/USD should put the weekly low of 1.0943 (July 28) to the test sooner rather than later ahead of a probable move to the interim 55-day and 100-day SMAs at 1.0910 and 1.0908, respectively. The loss of this region could open the door to a potential visit to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0728 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.
