Euro remains directionless near 1.0900
- Euro exchanges ups & downs around 1.0900 vs. the US Dollar.
- Stocks in Europe remain en route to a negative close on Tuesday.
- EUR/USD finds a comfort zone around the 1.0900 so far this week.
- Trade balance figures in Germany surprised to the downside in May.
- US markets are closed due to the Independence Day holiday.
The Euro (EUR) is currently showing signs of being slightly undervalued after a session earlier this week that did not yield any clear results. Despite this, the EUR/USD pair has not been able to break through the critical level of 1.0900 this week, due to the general lack of direction in risk appetite trends.
Meanwhile, the US Dollar (USD) is experiencing small gains, hovering around the 103.00 mark when measured by the USD Index (DXY), in a market environment characterized by low trading activity and volatility due to the US Independence Day holiday.
As far as monetary policy is concerned, there is no significant news, and investor expectations remain steady regarding an expected 0.25% interest rate hike by both the European Central Bank (ECB) and the Federal Reserve at their upcoming meetings later this month.
In the meantime, the central banks’ efforts to combat inflation and normalize their monetary policies continue to be a topic of ongoing debate, amidst growing speculation about an economic slowdown on both sides of the Atlantic.
On the domestic front, Germany’s trade surplus decreased to €14.4B in May, with exports declining by 0.1% MoM and imports increasing by 1.7% MoM. Meanwhile, Spain’s unemployment rate decreased by 50.3K individuals in the past month.
On Tuesday, there is no significant news from the US, but the release of the FOMC Minutes on Wednesday and June’s Nonfarm Payrolls on Friday are expected to attract considerable attention.
Daily digest market movers: Euro looks at US docket for direction
- The EUR fails to gather convincing upside traction so far on Tuesday.
- The inactivity in the US markets should keep trading conditions depressed.
- Australia’s RBA kept the OCR unchanged at 4.10%.
- ECB’s Joachim Nagel reiterates that a September hike hinges on new data.
- Investors continue to price in a Fed, ECB hike in July.
- FOMC Minutes and Nonfarm Payrolls are next of note in the docket.
Technical Analysis: Euro poised to some range bound trade ahead of data
EUR/USD appears under pressure and risks a potential deeper pullback in case the bears retail control. That said, the loss of the weekly low at 1.0835 (June 30) could open the door to a test of the interim 100-day SMA at 1.0821. The breakdown of the latter should meet the next contention area not before the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).
If bulls regains the upper hand, the next hurdle is then expected at the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges the weekly top of 1.1184 (March 31, 2022), which is supported by the 200-week SMA at 1.1180, just before another round level at 1.1200.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0602.
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.