- Euro accelerates its advance beyond 1.1100 against the US Dollar.
- Stocks in Europe trade with marked gains on Thursday.
- EUR/USD extends further the recent breakout of the 1.1100 barrier.
- Germany’s Consumer Confidence expected to improve a tad in August.
- The ECB is expected to hike rates by 25 bps later in the session.
- US Flash Q2 GDP takes centre stage.
The Euro (EUR) adds to the optimism seen on Wednesday against the US Dollar (USD) and lifts EUR/USD to the area of weekly highs well north of 1.1100 on Thursday.
The strong advance in the pair comes on the back of extra weakness in the Greenback, which was particularly magnified after the FOMC event on Wednesday. On this, the Federal Reserve unanimously hiked rates by 25 bps as widely expected, taking the Fed Funds Target Range (FFTR) to 5.25%-5.50%.
In addition, at his press conference, Chair Jerome Powell confirmed live meetings for policy statements, citing little change from May and June iterations, while the current level of interest rates support slower tightening if needed.
Later in the session, the European Central Bank (ECB) is forecast to follow suit and raise its policy rates by a quarter percentage point. However, the subsequent press conference by President Christine Lagarde and the bank’s intentions regarding its current tightening campaign beyond the summer are seen grabbing the centre of the debate.
In the domestic data space, Germany’s Consumer Confidence gauged by GfK rose to -24.4 for the month of August, while the Unemployment Rate in Spain dropped to 11.6% and Consumer Confidence in Italy eased to 106.7 in July.
Across the pond, advanced Q2 GDP Growth Rate, usual weekly Initial jobless Claims, Durable Goods Orders, Pending Home sales, and advanced Goods Trade Balance are all due.
Daily digest market movers: Euro gathers extra steam after FOMC
- The EUR regains composure and surpasses 1.1100 against the USD.
- The USD Index faces extra selling pressure and breaches 101.00.
- Investors will scrutinize the ECB plans for the summer.
- US, German 10-year yields advance modestly.
- Consensus expects the ECB to raise rates by a quarter percentage point.
Technical Analysis: Euro targets 2023 peak at 1.1275
EUR/USD finally leaves behind the 1.1100 barrier on Thursday and opens the door to the continuation of the rebound in the very near term.
The next hurdle for EUR/USD appears at the 2023 high at 1.1275, reached on July 18. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.
In case sellers regain the initiative, EUR/USD should meet immediate contention at Tuesday's weekly low of 1.1020 ahead of the psychological 1.1000 mark, all seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMA) at 1.0905 and 1.0901, respectively. The loss of this region could open the door to a potential visit to the July 6 low of 1.0833 ahead of the key 200-day SMA at 1.0713 and the May 31 low of 1.0635. South from here emerges the March 15 low of 1.0516 before the 2023 low of 1.0481 on January 6.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the key 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.
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