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Euro catches a bid to trade in upper 1.09s after worse-than-expected US data

  • Euro vs USD nears completion of a triangle-like pattern and trades in 1.0970s at time of publication.  
  • US Dollar loses some ground after the release of worse-than-expected labor and manufacturing data.
  • Euro awaits defining data on May 2 when ECB will release its Bank Survey and April HICP inflation figures.

The Euro (EUR) trades marginally higher in the 1.0970s versus the US Dollar (USD) after Wall Street's opening bell on Thursday. More broadly, the pair has pulled back from the recent April 14 highs of 1.1075 as the US Dollar recovers on bets the Federal Reserve (Fed) will continue raising interest rates

From a technical perspective, the Euro-Dollar pair is in a medium-term uptrend which is biased to extend. Scoping in, price action appears to be tracing out a triangle pattern which looks almost complete.

EUR/USD Market Movers

  • The US Dollar loses ground after poorer-than-expected economic data showed a rise in Initial Jobless Claims by 5K more than anticipated.
  • USD is further pressured by the results of the Philadelphia Fed Manufacturing Survey which fell to -31.3 versus -18.2 forecast, in April.  
  • Yet USD gains support from the Fed’s Beige Book, which stated, “Economic activity was little changed in recent weeks.”
  • The same report mentioned credit conditions have tightened in the aftermath of the banking crisis – but that’s to be expected.  
  • USD continues to benefit from St. Louis Fed’s Bullard talking up further rate hikes due to persistent inflation and overblown recession fears.   
  • Unexpectedly strong first quarter earnings from big US banks like JP Morgan and BofA help bandage the wounds from the sector’s crisis in March, further supporting the Greenback. 
  • The Euro remains supported by expectations that the ECB will continue with interest rate hikes, though their size will be data-dependent. 
  • European Central Bank’s chief economist Philip Lane has said the health of the region’s banks, as reported in the ECB Bank Lending Survey (BLS) (out on May 2), will be a key determinant of whether the ECB hikes aggressively or not. 
  • Lane further sees April HICP (also released May 2) inflation as likewise key to outlook on rates.
  • The Euro pulls back of a hundreth of a cent after the release of the ECB’s March meeting minutes.
  • Next up on Thursday’s docket is April Eurozone Consumer Confidence out at 14:00 GMT.
  • Fed commentary as well as Initial Jobless Claims and Philadelphia Fed Manufacturing are the main releases for the US Dollar.

EUR/USD technical analysis: Overall still trending up 

EUR/USD has been rising in a medium-term uptrend since reversing at the September 2022 lows, and this established trend is likely to continue. After a pullback in February 2023, EUR/USD recouped its losses during March and made new year-to-date highs above 1.1000 on April 13.


EUR/USD: Daily Chart


Drilling down to the 4-hour chart (below) and price action can be seen trading with steadily diminishing volatility in the mid 1.09s. It could be tracing out a triangle pattern which will eventually break out either higher or lower. Triangles are usually composed of five waves and the current wave looks like it might be the final 5th wave. If so, then a breakout is close at hand. 


EUR/USD: 4-hr Chart

The Chaikin Money Flow oscillator, an indicator that is supposed to help give clues as to the eventual direction of a breakout from a range bound market, has been below the zero-line during most of the evolution of the triangle, suggesting a slight bias towards expecting a downside break.

If price pierces below 1.0909 it would probably confirm the triangle was breaking lower whilst a breach of the 1.0999 April 17 high that it was higher. 

More broadly, a break and daily close above the 1.1075 year-to-date highs of April 14 would provide Euro bulls with added confidence to push price up to the next target at around 1.1190, where the 200-week Simple Moving Average (SMA) is situated and likely to provide pushback.

From a bearish perspective, a break and close below the lower high at 1.0830 would bring into question the strength and validity of the uptrend and could see losses extend down to a confluence of support at 1.0750. 

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

Joaquin Monfort

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

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