Euro advances to fresh three-day highs around 1.0530

The Euro extends its weekly recovery against the US Dollar.
Stocks in Europe en route to a positive close on Thursday.
EUR/USD advances to three-day highs near 1.0530.
The USD Index (DXY) revisits lows near 106.50.
The Construction PMI in Germany weakens in September.
US weekly Claims remained strong last week.
Investors' attention now shifts to upcoming Fedspeak.

The Euro (EUR) shows signs of continuing its recovery against the US Dollar (USD) as the week progresses, motivating EUR/USD to extend the rebound to weekly tops around 1.0530 so far on Thursday.

At the same time, the Greenback manages to reverse its initial decline towards the 106.50 area, as indicated by the USD Index (DXY). This reversal occurs amidst the improved momentum in riskier assets and a mixed bias in US bond yields across various maturity periods.

On the monetary policy front, investors anticipate the Federal Reserve (Fed) to raise interest rates by 25 bps before the end of the year. Simultaneously, market speculation about the European Central Bank (ECB) halting policy adjustments continues, despite inflation levels beyond the bank's target and rising worries of a future recession or stagflation in the region.

Data-wise, in the euro region, Construction PMI in Germany receded to 39.3 in September and improved a tad to 43.6 when it comes to the broader euro area. Earlier in the session, Germany’s trade surplus came in at a higher than expected €16.6 billion in August, while Industrial Production in France contracted 0.3% on month

In the US, the usual weekly Initial Jobless Claims rose by 207K in the week to September 30, while the Balance of Trade showed a $58.3B deficit in August. Later in the NA session, the focus of attention will be on speeches by Cleveland Fed President Loretta Mester (2024 voter, haw), Richmond Fed President Thomas Barkin (2024 voter, centrist), San Francisco Fed President Mary Daly (2024 voter, hawk), and FOMC Governor Michael Barr (permanent voter, centrist).

Daily digest market movers: Euro sets sails to 1.0600

The EUR remains bid above 1.0500 against the USD on Thursday.
US and German yields correct lower from recent multi-year tops.
Investors expect the Fed to hike rates one more time before year end.
Markets anticipate that the ECB's tightening effort will come to a halt.
Speculation of FX intervention in USD/JPY remains high.
BoE's Broadbent sees inflation returning to the bank's target in two-years' time.
ECB's Kazimir suggested the hiking cycle reached its peak in September.

Technical Analysis: Euro should meet the initial target at 1.0617

EUR/USD seems to have regained composure and looks to consolidate the breakout of the 1.0500 barrier.

The resumption of the selling pressure could force EUR/USD to revisit the 2023 low of 1.0448 seen on Tuesday and challenge test the round level of 1.0400. The breakdown of this level could put back on the radar a potential test of the November 30, 2022, lows of 1.0290 and the 1.0222 seen on November 30, 2022.

Further gains could encourage the pair to hit the next up-barrier at 1.0617 from September 29, before reaching the critical 200-day Simple Moving Average (SMA) at 1.0824. If the pair breaks beyond this level, it might test the August 30 high of 1.0945 as well as the psychological barrier of 1.1000. Once the August 10 peak of 1.1064 is cleared, spot could confront the July 27 top of 1.1149 and the 2023 peak of 1.1275 from July 18.

As long as the EUR/USD continues below the 200-day SMA, additional bearish pressure is possible.

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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