- Euro comes under pressure and gives away initial gains vs. the US Dollar.
- Stocks in Europe keep the positive performance on Tuesday.
- EUR/USD abandons the area of 2-month tops north of 1.1000.
- Germany’s Final inflation figures matched the preliminary readings.
- Economic Sentiment in Germany disappoints in July.
The Euro (EUR) reverses initial gains and drops to daily lows near 1.0980 vs. the US Dollar (USD) on turnaround Tuesday. Indeed, EUR/USD faces rising selling pressure on the back of the pick-up in the risk-off sentiment as well as the rebound in the US Dollar (USD) to the 102.00 neighbourhood after its earlier move to new 2-month lows in the 101.70/65 band.
The FX universe continues to correct lower on the back of the now diminishing appetite for the risk complex, all against the backdrop of a tepid bounce in US and German yields. Despite this, recent strong results from key US fundamentals indicate a resilient US economy and a tight labor market, reinforcing the likelihood of a 25 basis point rate hike by the Federal Reserve at its July 26 gathering. Similarly, a 25 bps rate raise is anticipated at the European Central Bank’s (ECB) meeting later in the month.
Still around the ECB, Board member Francois Villeroy suggested that food inflation should lose traction in the second half of the year and hinted that the CPI should average 2.5% in 2024. He also argued that the tightening cycle is approaching its peak, where the bank should remain for a while.
In the meantime, there are increasing concerns about an economic slowdown on both sides of the Atlantic, and discussions continue about the potential future actions of the Fed and ECB in normalizing their monetary policies.
In Germany, the final Inflation Rate for June showed the CPI rising 0.3% MoM and 6.4% over the last twelve months, matching the advanced prints.
Additional data in the region saw the Economic Sentiment tracked by the ZEW Institute worsen to -14.7 and -12.2 when it comes to the broader euro bloc for the month of July.
In the US, the NFIB Business Optimism Index improved to 91 for the month of June and the IBD/TIPP Economic Optimism index and the speech from St. Louis Fed James Bullard (2025 voter, hawk) come later.
Daily digest market movers: Euro recedes from July peaks near 1.1030
- The EUR faces initial resistance at monthly peaks near 1.1030.
- Germany’s final CPI rose 6.4% in the year to June, as expected.
- UK labour market report printed mixed results in April/May.
- Investors continue to see a 25 bps rate hike by the Fed, ECB in July.
- ECB Villeroy ruled out a wage spiral in France and the euro area.
Technical Analysis: Euro remains supported by the 1.0830 zone
The continuation of the uptrend now targets the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. Further up comes 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.
On the downside, the weekly low at 1.0833 (July 6) appears reinforced by the provisional 100-day SMA. The breakdown of this region should meet the next contention area not before the May low of 1.0635 (May 31), which remains propped up by the crucial 200-day SMA (1.0630). South from here emerges the March low of 1.0516 (March 15) prior to the 2023 low of 1.0481 (January 6).
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA, today at 1.0630.
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.
Source: https://www.fxstreet.com/news/euro-extends-the-upside-to-new-monthly-peaks-near-11030-202307110831