Euro picks up extra pace, exceeding key 1.0600 level
- The Euro advances further against the US Dollar.
- Stocks in Europe open with generalized gains on Friday.
- EUR/USD surpasses 1.0600, posting a four-day high.
- The DXY USD Index extends declines from recent 2023 peaks.
- Germany reported a firm labour market report.
- US PCE inflation, final Consumer Sentiment are due.
The Euro (EUR) manages to gather extra steam against the US Dollar (USD) on Friday, motivating EUR/USD to retake the key 1.0600 hurdle and beyond at the end of the trading week.
In the meantime, the Greenback continues to correct lower from recent yearly peaks around 106.80 and breaches the 106.00 support with marked conviction when tracked by the USD Index (DXY). The US Dollar’s pullback is also accompanied by some improvement in risk sentiment and rising jitters around a potential US federal government shutdown this weekend.
The recovery in the pair also comes amidst some loss of momentum in US and German yields after hitting multi-year tops earlier in the week.
The monetary policy outlook remains unchanged, with investors still factoring in a 25 bps interest rate hike by the Federal Reserve (Fed) before the year concludes. Meanwhile, discussions in the market persist regarding a potential impasse in policy adjustments at the European Central Bank (ECB), despite inflation levels that exceed the bank’s target and mounting concerns about a potential recession.
In the euro calendar, Retail Sales in Germany contracted 2.3% YoY in August, while the Unemployment Change increased by 10K individuals in September and the Unemployment Rate held steady at 5.7% in the same period. Later in the session, the flash Inflation Rate in the broader euro area will be in the spotlight.
Across the pond, inflation gauged by the PCE and Core PCE will take centre stage along with Personal Income, Personal Spending, flash Goods Trade Balance and the final print of the Michigan Consumer Sentiment.
Daily digest market movers: Euro grabs some breathing room on USD selling
- The EUR bounces off eight-month lows against the USD.
- US and German yields extend the corrective decline on Friday.
- Investors keep pricing in another rate raise by the Fed before year-end.
- Markets expect a pause at the ECB’s hiking cycle.
- UK Q2 GDP figures surprise to the upside.
- Intervention concerns persist as USD/JPY targets the 150.00 barrier.
Technical Analysis: Downside pressure should alleviate above 1.0830
EUR/USD extends the recovery to the area beyond 1.0600 on Friday, managing to bounce off the oversold zone.
In case the recovery in EUR/USD becomes more serious, the pair should meet the next up-barrier at the September 12 high of 1.0767, prior to the key 200-day Simple Moving Average (SMA) at 1.0828. Should the pair surpass this level, it may pave the way for a test of the transitory 55-day SMA at 1.0855 ahead of the August 30 top at 1.0945 and the psychological hurdle of 1.1000. If the pair clears the latter, it could then challenge the August 10 peak of 1.1064 before the July 27 peak at 1.1149 and the 2023 high of 1.1275 seen on July 18.
On the downside, there is immediate contention at Thursday’s low of 1.0491 seconded by the 2023 low of 1.0481 from January 6.
As long as the EUR/USD remains below the 200-day SMA, the potential for downward pressure persists.
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.