- The Euro reverses Tuesday’s losses vs. 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 so far.
- The Fed is expected to keep rates unchanged at its event.
- Usual weekly MBA Mortgage Applications are due later.
- ECB’s Panetta, Enria, Schnabel, Jochnick, Mc Caul, Elderson are due to speak.
The Euro (EUR) leaves behind Tuesday’s daily pullback against the US Dollar (USD), encouraging EUR/USD to regain some composure and print 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 steady cautiousness ahead of the key FOMC gathering later in the European evening or night.
In the domestic calendar, New Car Registrations in the European Union expanded 21.0% in the year to August, and Producer Prices in Germany rose 0.3% MoM in August and contracted 12.6% from 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 vs. the USD.
- US and German yields trade marginally on the defensive so far.
- Consensus among 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 a 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 sooner rather than later.
In case EUR/USD breaches its September low of 1.0631 (September 14), there is a possibility that it may revisit the March low of 1.0516 (March 15) ahead of the 2023 bottom of 1.0481 (January 6).
On the upside, there is a minor resistance level at the weekly high of 1.0767 (September 12) prior to the more relevant 200-day SMA at 1.0828. If the pair manages to break above this level, it could allow for the continuation of the recovery to the temporary 55-day SMA at 1.0916, ahead of the weekly top of 1.0945 (August 30). 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 peak of 1.1064 (August 10). North from here, the pair could retest the weekly high at 1.1149 (July 27), before the 2023 top at 1.1275 (July 18).
However, it is important to note that 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.
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.