- Euro resumes its decline revisits the 1.0800 zone vs. the US Dollar.
- Stocks in Europe reverse their gains towards the end of the session.
- EUR/USD deflates to the vicinty of the 1.0800 region ahead of Jackson Hole.
- The USD Index (DXY) picks up pace and challenges the 104.00 zone.
- Business Confidence in France weakens to 96 in August.
- Initial Jobless Claims increased less than estimated during last week.
- US Durable Goods Orders came in short of estimates in July.
The Euro’s (EUR) selling momentum picks up pace against the US Dollar (USD), forcing EUR/USD to trade at shouting distance from Wednesday’s multi-week lows near 1.0800 the figure, an area also coincident with the key 200-day SMA, on Thursday.
On the other side of the road, the Greenback manages to regain some composure and appears en route to revisit Wednesday’s multi-week tops near 104.00 when gauged by the USD Index (DXY). The daily gains in the index also come in tandem with a decent bounce in US yields across different maturities.
Moving forward, all the attention is expected to be on the kick-off of the Jackson Hole Symposium. Investors expect Federal Reserve (Fed) Chairman Jerome Powell’s speech on Friday to be in line with his message after July’s FOMC meeting.
Regarding monetary policy, there is a renewed debate surrounding the Fed’s dedication to maintaining a more stringent approach over an extended period of time. This heightened attention stems from the remarkable resilience of the US economy, despite slight relaxation in the labour market and lower inflation figures observed in recent months.
Meanwhile, internal divisions among European Central Bank (ECB) Council members have emerged regarding the possibility of prolonging tightening measures beyond the summer season. These disagreements are fueling a renewed perception of fragility, which is hurting the Euro.
A very light economic docket in the eurozone saw French Business Confidence weaken to 96 in August. In the US calendar, the usual Initial Jobless Claims rose by 230K in the week ended on August 19, while the Chicago Fed National Activity Index improved to 0.12 in July and Durable Goods Orders unexpectedly contracted at a monthly 5.2% also in July.
Daily digest market movers: Euro remains prudent ahead of Jackson Hole, Powell
- The Euro weakens to the 1.0815 area vs. USD.
- The risk-off sentiment favours the US Dollar ahead of key events.
- The downside pressure in US yields appears somewhat exhausted.
- Investors’ focus remains on the Jackson Hole event.
- Fed’s tighter-for-longer narrative keeps running in the background.
- Chair Powell’s speech is likely to reinforce the battle against inflation.
- The Fed is likely to maintain rates unchanged until Q1 2024.
- Iran, Saudi Arabia and UAE to become new members of BRICS in 2024.
Technical Analysis: Euro risks a deeper decline below 1.0800
EUR/USD’s downward bias appears propped up by the 1.0800 region, home of recent lows and the critical 200-day SMA.
Further retracements could force EUR/USD to revisit recent lows around 1.0800, an area coincident with the significant 200-day SMA. The loss of this region puts a potential test of the May 31 low of 1.0635 back on the radar ahead of the March 15 low of 1.0516 and the 2023 low at 1.0481 seen on January 6.
In case bulls regain the initiative, the pair is expected to meet an interim barrier at the 55-day SMA at 1.0964 prior to the psychological 1.1000 the figure and the August 10 high at 1.1064. Once the latter is cleared, spot could challenge the weekly top at 1.1149. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 recorded on July 18. Further up comes the 2022 high at 1.1495, which is closely followed by the round level of 1.1500.
The positive outlook for EUR/USD could be threatened if the spot price breaks below the important 200-day SMA.
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-comes-under-pressure-and-revisits-10850-ahead-of-jackson-hole-202308240807