Euro gives away gains, as the Dollar jumps after US data
- The US Dollar appreciates as Jobless Claims and Housing starts underscore the resilience of the US economy.
- The Euro had bounced up earlier, buoyed by ECB's Lagarde's comments discarding rate cuts until next summer.
- Upbeat US data is casting doubt on market expectations of Fed cuts and underpinning support for the US Dollar.
The Euro (EUR) has given away previous gains and turned negative in the daily chart after US Jobless Claims and housing data confirmed that the US economy has entered 2024 in good shape. US Jobless claims declined against expectations in the second week of January with housing starts and building permits resisting despite the tight credit conditions.
Today's figures come after, an upbeat US Retail Sales report, underscoring the resilience of US economy. This backs the recent comments by Federal Reserve (Fed) policymakers warning that it is still too early to claim victory against inflation and increase speculative demand for the US Dollar.
Before that, the US Dollar Index had retreated from one-month highs. The European Central Bank (ECB) President Christine Lagarde played down chances of monetary easing until next summer, at the Davos World Economic Forum on Wednesday providing a fresh boost to an ailing Euro.
Daily digest market movers: The Euro pulls back to one-month lows after strong US Data
- The Euro has given away previous gains after US Jobless claims and housing data confirmed that US economy remains strong.
- US Jobless claims eased to 187K in the week of January 12, down from 203K in the previous week and against expectations of an increase to 207K.
- US Housing starts declined to 1.46 M. in December from the downwardly revised 1.525 M. in the previous month. The market had anticipated a wider decline to 1.426 M.
- US Building Permits increased to 1.495M in December, from 1.467 M. in November, well above the 1.48M expected. The high building permits suggest that construction activity will remain at strong levels in the coming months.
- On Wednesday, The US Census Bureau revealed that US, Retail sales increased 0.6% in December, above November’s 0.3% increase and beating expectations of a 0.4% increase.
- Also on Wednesday, ECB President, Christine Lagarde, affirmed that the bank will not start cutting interest rates until summer. The market was expecting the first rate cut to come in spring.
- The market keeps paring back hopes of Fed cuts in March. The CME Group Fed Watch Tool shows a 55% chance that the US central bank will start easing in March, from levels above 70% earlier this week.
- Geopolitical tensions continue escalating. News that Pakistan has attacked Iran in retaliation for Tehran’s offensive earlier this week is likely to curb investors’ appetite for risk and limit the Euro’s recovery.
Technical Analysis: EUR/USD is hovering above 1.0845 support area
The EUR/USD pair is has retraced previous gains and retested the 1.0845 support area, which so far, is limiting losses. Technical indicators remain bearish with the RSI below the 50 level and price an imminent bearish cross on the 4h SMAs giving bears fresh hopes.
A clear break above 1.0845 would activate a bearish Head and Shoulders (H&S) pattern increasing negative pressure towards 1.0800 and 1.0725. The H&S measured target is the 78.6% Fibonacci retracement of the late 2023 rally, at 1.0600.
On the upside, Euro bulls are likely to meet a significant resistance at the 1.0930 area, where previous trendline support and the confluence of the 4-hour 200 and 50 SMAs will challenge bulls.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.04% | -0.10% | -0.10% | -0.20% | -0.14% | -0.13% | 0.09% | |
| EUR | 0.03% | -0.08% | -0.06% | -0.16% | -0.10% | -0.09% | 0.13% | |
| GBP | 0.11% | 0.08% | 0.01% | -0.08% | -0.02% | -0.02% | 0.20% | |
| CAD | 0.10% | 0.07% | -0.02% | -0.10% | -0.04% | -0.03% | 0.19% | |
| AUD | 0.20% | 0.15% | 0.08% | 0.09% | 0.06% | 0.06% | 0.30% | |
| JPY | 0.14% | 0.11% | 0.01% | 0.03% | -0.07% | 0.00% | 0.23% | |
| NZD | 0.14% | 0.08% | 0.02% | 0.03% | -0.07% | -0.02% | 0.22% | |
| CHF | -0.08% | -0.13% | -0.21% | -0.19% | -0.29% | -0.23% | -0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
