25 Oct 2023

Euro remains under pressure in the sub-1.0600 region, looks at data, Lagarde

The Euro trades with small losses vs. the US Dollar.
Stocks in Europe open mostly in the red on Wednesday.
EUR/USD has met resistance just ahead of 1.0700 so far this week.
The USD Index (DXY) clings to daily gains around 106.30.

The Euro (EUR) is currently showing a slight vulnerability against the US Dollar (USD), causing EUR/USD to maintain the trade below the 1.0600 in the wake of the opening bell in the old continent on Wednesday.

At the same time, the Greenback is managing to regain some stability following Tuesday’s strong rebound, motivating the USD Index (DXY) to hover around the low-106.00s against the backdrop of mixed US yields for the time being.

In terms of monetary policy, there is a growing expectation among market participants that the Federal Reserve (Fed) will maintain its current position of keeping interest rates unchanged at the November 1 meeting. This belief was reinforced by comments made by Fed Chair Jerome Powell during his recent speech at the Economic Club of New York.

Meanwhile, investors are considering the possibility of the European Central Bank (ECB) discontinuing its tightening policy, despite inflation levels surpassing the bank's target and concerns emerging about the risk of an economic slowdown or stagflation in the Eurozone.

In the euro docket, all the attention will be on the release of the Business Climate measured by the IFO Institute for the current month.

In the US, usual weekly Mortgage Applications tracked by MBA are due later ahead of New Home Sales for the month of September.

Daily digest market movers: Euro remains depressed below 1.0600

The EUR keeps the offered bias vs. the USD midweek.
US and German yields trade without a clear direction.
The Fed could still hike rates at the December meeting.
The ECB is largely expected to keep rates unchanged on October 26.
Geopolitical effervescence seems to have diminished somewhat so far.
Inflation in Australia surprises to the upside in Q3.
The ECB’S Christine Lagarde speaks later in the session.

Technical Analysis: Euro still risks a deeper pullback

EUR/USD trades in a dubious fashion near 1.0580 following Tuesday’s pronounced retracement.

If the selling trend continues, immediate support can be found around the weekly low of 1.0495 (October 13), which is closely followed by the 2023 low of 1.0448 (October 3), before reaching the round level of 1.0400. If this zone is breached, the pair may decline further towards the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).

If bulls regain the upper hand, EUR/USD should face initial resistance at the October peak of 1.0694 (October 25), an area coincident with the 55-day Simple Moving Average (SMA). The surpass of this region exposes the weekly top of 1.0767 (September 12) prior to the important 200-day SMA at 1.0815. A break above this level could indicate a further push towards the weekly high of 1.0945 (August 30), just before reaching the psychological level of 1.1000. If the upward momentum continues, there is a possibility of challenging the August peak of 1.1064 (August 10), seconded by the weekly top of 1.1149 (July 27) and potentially even reaching the 2023 high of 1.1275 (July 18).

It is important to note that as long as the EUR/USD remains below the 200-day SMA, there is a possibility of sustained bearish pressure on the pair.

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.