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Euro clings to daily gains near 1.0800 ahead of key macroeconomic events


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  • Euro gathered strength ahead of key central bank meetings.
  • Euro benefits from the expected ECB rate hike despite fears of a recession in Europe.
  • EUR/USD could react to the US inflation report on Tuesday.

The Euro (EUR) finds demand on Tuesday as investors adjust their positions while preparing for the highly-anticipated central bank policy announcements. The EUR/USD pair has attracted investors’ attention amid a firmer risk-appetite theme and hopes of a decline in the Federal Reserve (Fed)-European Central Bank (ECB) policy divergence.

The EUR’s performance is likely to be impacted by ECB President Christine Lagarde’s June interest rate decision announcement in the second half of the week. While the scale of volatility from the US Dollar will also higher as the Federal Reserve will unveil its interest rate policy on Wednesday. But before that, heavy action is anticipated in the EUR/USD pair after the release of the United States Consumer Price Index (CPI) data (May).

Daily digest market movers: Euro holds its ground ahead of US Inflation

  • The market participants are entirely focusing on the US Inflation data as it will provide significant guidance about the Fed’s policy.
  • Monthly headline inflation is expected to accelerate at a pace of 0.2%, slower than the 0.4% pace being recorded for April. However, the monthly pace in core CPI that excludes oil and food prices is seen steady at 0.4%.
  • Headline inflation is seen softening sharply amid a negative impact from the energy component while core CPI is expected to show persistence due to solid demand for durables and services.
  • A soft reading of US CPI would bolster the case of a neutral interest rate policy announcement by the Federal Reserve as other catalysts such as Employment and economic activities are supporting the unaltered interest rate decision case.
  • US Unemployment Rate has climbed to 3.7% and weekly Initial Jobless Claims have been increasing straight for the past three weeks. US Factory activities have been contracting straight for the past seven months and the service sector is hardly showing any expansion.
  • Former Dallas Fed Bank President Robert Kaplan said in an interview early Tuesday, he would support a “hawkish pause” at this week’s meeting.
  • Fed chair Jerome Powell announced that more interest rate hikes are less certain as tight lending conditions by United States commercial banks are barricading inflationary pressures.
  • US President Joe Biden is going to announce Federal Reserve Vice Chair and will fill the vacant Fed Board seat on June 21 before the Senate Banking Committee. Fed Governor Philip Jefferson is expected to be the next vice chair, and an open Fed Board seat would be equipped by economist Adriana Kugler.
  • ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to 4.25% despite deepening fears of a recession in Europe.
  • The final reading of the Eurozone’s Q1 Gross Domestic Product (GDP) contracted by 0.1%. led by constantly declining factory activities.
  • The German economy has already registered a recession after reporting two consecutive quarters of contraction.
  • An interest rate hike by the ECB and an unchanged policy stance by the Fed would trim the ECB-Fed policy divergence.
  • The US Dollar Index is making efforts in defending its immediate support of 103.35 amid positive market sentiment.

Technical Analysis: Euro clings to daily gains

The Euro is confidently driving the major currency pair higher in a Rising Channel chart pattern on a four-hour scale in which each corrective move is considered a buying opportunity by the market participants. EUR/USD has refreshed its three-week high around 1.0800, however, the 200-period Exponential Moving Average (EMA) at around 1.0800 might act as a barricade for the Euro bulls.

Buyers could show more interest if the EUR/USD manages to sustain comfortably above 1.0800. The upside bias could be ruined if the major currency pair drops below June 12 low of 1.0733.

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.