The EUR/USD pair recovers some ground on Friday, climbing above 1.1600 as the Greenback plunges, driven by an escalation of the trade war between the US and China. However, gains seem capped by the political turmoil and weaker-than-expected data in the Eurozone (EZ). The pair trades at 1.1606, up 0.37% at the time of writing.
Dollar slumps on renewed tariff threats; France’s leadership reset relieved Euro’s bulls
On Friday, the Euro (EUR) recovered after four days of consecutive losses, despite the ongoing political turmoil in France. Recently, the French President Emmanuel Macron reappointed Se´bastien Lecornu as Prime Minister, after he quit the job earlier this week.
Lecornu accepted Macron’s offer and posted on his X.com account that he will “do everything possible to provide France with a budget by the end of the year and to address the daily life issues of our fellow citizens.” He added that “We must put an end to this political crisis that exasperates the French people and to this instability that is harmful to France’s image and its interests.”
The Euro advanced as a relief, underpinned by US Dollar weakness. The Greenback depreciated following Trump’s threats to impose “massive increase of tariffs” on China, pointing to the recent hostile export controls on rare-earth minerals.
Data-wise, the University of Michigan (UoM) revealed that Consumer Sentiment held steady in October, despite the US government shutdown and concerns about the labor market and inflation.
Daily market movers: EUR/USD advances, despite Fed’s hawkish comments
- The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, slides 0.52% down to 98.87.
- The UoM Consumer Sentiment eased slightly to 55 from 55.1, exceeding forecasts for a deeper deterioration. The poll showed that sentiment declined amongst Democrats. Overall, consumers were pessimistic about future personal finances, and conditions for buying durable goods were unfavorable. The same survey showed that inflation expectations for one year edged lower from 4.7% to 4.6%, and for a five-year period steadied at 3.7%.
- St. Louis Fed President Alberto Musalem said the central bank’s dual mandate is facing strain, with inflation still elevated while the labor market shows signs of softening. He noted that policy currently sits between “modestly restrictive and neutral,” but reiterated that overall financial conditions remain accommodative.
- Money markets are fully pricing in a 25-basis-point rate cut at the Fed’s October 29 meeting, with odds at 94%, according to the Prime Market Terminal probability tool.
Technical outlook: EUR/USD recovers 1.1600, poised to consolidate
EUR/USD slipped into a short-term bearish bias after breaking below the 100-day Simple Moving Average (SMA) at 1.1633 and the 1.1600 handle. The Relative Strength Index (RSI) is trending toward the neutral 50 line, signaling that selling momentum is fading.
Immediate support emerges at 1.1550, followed by 1.1500. A break below these levels would expose the August 1 cycle low near 1.1391. On the upside, resistance sits at 1.1650 and 1.1700. A sustained move above 1.1700 would open the door to 1.1800 and the July 1 high at 1.1830.
Euro FAQs
The Euro is the currency for the 19 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.