Euro looks bid close to 1.0700 ahead of Fed
- The Euro reverses Tuesday’s losses against the US Dollar.
- Stocks in Europe kicked off Wednesday’s session with decent gains.
- EUR/USD remains bid below the 1.0700 hurdle.
- The USD Index (DXY) treads water in the low 105.00s.
- The Fed is expected to keep rates unchanged.
- Weekly MBA Mortgage Applications are due later Wednesday.
- ECB’s Panetta, Enria, Schnabel, Jochnick, McCaul, Elderson are due to speak.
The Euro (EUR) leaves behind Tuesday’s pullback against the US Dollar (USD), leading EUR/USD to regain some composure and post decent gains near the 1.0700 barrier on Wednesday.
On the other side of the equation, the Greenback trades in an inconclusive fashion in the low 105.00s when tracked by the USD Index (DXY) amidst cautiousness ahead of the key FOMC gathering in the North American session.
Market participants widely anticipate the Fed holding its interest rates steady amidst rising speculation of rate cuts at some point in Q2 2024.
In the European calendar, New Car Registrations in the European Union (EU) expanded 21.0% in the year to August, and Producer Prices in Germany rose 0.3% MoM in August and contracted 12.6% compared with the same month a year earlier.
In the US, MBA will release its usual weekly Mortgage Applications and the EIA will publish its weekly report on US crude Oil supplies.
Daily digest market movers: Euro appears bid prior to Fed
- The EUR gathers renewed buying interest against the USD.
- US and German yields trade marginally on the defensive.
- Consensus among economists see the Fed keeping rates unchanged on Wednesday.
- The PBoC kept its 1-Year and 5-Year Loan Prime Rate (LPR) unchanged.
- Markets continue to factor in probable rate cuts by the Fed in H1 2024.
- An impasse in the ECB’s hiking cycle appears to be gathering traction.
- UK inflation came in short of estimates in August.
Technical Analysis: Euro faces minor up-barrier near 1.0770
EUR/USD resumes the upside amidst the broader weekly choppiness and is expected to challenge the key 1.0700 region.
In case EUR/USD breaches its September 14 low of 1.0631, there is a possibility that it may revisit the March 15 low of 1.0516 ahead of the 2023 bottom of 1.0481 from January 6.
On the upside, there is a minor resistance level at the September 12 high of 1.0767 prior to the more relevant 200-day Simple Moving Average (SMA) at 1.0828. If the pair manages to break above this level, it could continue its recovery to the temporary 55-day SMA at 1.0916, ahead of the August 30 top of 1.0945. The surpass of the latter could put a potential visit to the psychological level of 1.1000 back on the radar seconded by the August 10 peak of 1.1064. North from here, the pair could retest the July 27 high at 1.1149, before the 2023 top at 1.1275 seen on July 18.
As long as the EUR/USD remains below the 200-day SMA, there is a possibility that the pair may continue to experience downward pressure.
Euro FAQs
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%).
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.
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.
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.
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.