- Euro fails to surpass the 1.0900 level vs. the US Dollar.
- Stocks in Europe navigate a “sea of red” on Wednesday.
- EUR/USD appears capped by the 1.0900 region so far.
- Germany, EMU final Services PMI eased in June.
- US markets slowly return to normal activity.
The Euro (EUR) adds to the weekly bearish note following an unsuccesful effort to convincingly surpass the significant barrier at 1.0900 vs. the US Dollar (USD) earlier on Wednesday. A breakout of this key resistance area would restore the positive bias in EUR/USD and open the door for further gains in the short-term horizon.
Meanwhile, the US dollar fluctuates near the 103.00 level amidst favorable risk appetite trends despite the Chinese Services sector experiencing a significant decline in June compared to the previous month, propping up the idea that an strong economic recovery in the country still remains elusive.
In terms of monetary policy, there are no major updates, and investor expectations remain stable regarding an anticipated 0.25% interest rate hike from both the European Central Bank (ECB) and the Federal Reserve at their respective upcoming meetings later this month.
The central banks’ efforts to combat inflation and normalize their monetary policies continue to be a subject of ongoing debate, as speculations about an economic slowdown on both sides of the Atlantic continue to grow.
Shifting focus to the euro area, the final figures reveal the HCOB Services PMI for Germany at 54.1 and for the broader euro zone at 52.0, both recorded in June. Additionally, Producer Prices for the euro bloc will be released later in the session.
In the United States, Factory Orders for May will be announced, followed by the IBD/TIPP Economic Optimism index, the FOMC Minutes, and a speech by NY Fed John Williams, a permanent voter known for centrist views.
Daily digest market movers: Euro leaves behind part of the recent weakness
- The EUR briefly surpasses the 1.0900 barrier earlier on Wednesday.
- US traders are back to their desks following July 4th holiday.
- Chinese Caixin Services PMI came in at 53.9 in June (from 57.1).
- Bets on a Fed, ECB rate hike in July remain steady.
- Investors’ attention will likely be on the FOMC Minutes.
Technical Analysis: Euro still risks further downside
Despite Wednesday’s bullish attempt, EUR/USD remains under pressure and the door remains open to a probable retracement in the short term. Spot needs to clear the June high around 1.1010 to mitigate the current selling bias.
Against that, the loss of the weekly low at 1.0835 (June 30) could pave the way to a test of the transitory 100-day SMA at 1.0823. The breakdown of the latter should meet the next contention area not before the May low of 1.0635 (May 31) ahead of the March low of 1.0516 (March 15) and the 2023 low of 1.0481 (January 6).
If bulls regains the upper hand, the next hurdle is then expected at the June peak of 1.1012 (June 22) prior to the 2023 high of 1.1095 (April 26), which is closely followed by the round level of 1.1100. North from here emerges 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.
The constructive view of EUR/USD appears unchanged as long as the pair trades above the crucial 200-day SMA, today at 1.0608.
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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