- EUR/USD rebounds and returns to near 1.0500 as the US Dollar resumes its corrective trend triggered after Trump nominated Bessent as US Treasury Secretary.
- ECB policymakers support gradually lowering interest rates to mitigate the risks of inflation becoming persistent.
- This week, investors will focus on US PCE inflation for October and preliminary Eurozone HICP data for November.
EUR/USD recovers intraday losses and bounces near the psychological resistance of 1.0500 in the European session on Tuesday. The major currency pair recovers after a weak opening as the US Dollar (USD) gives up most of its daily gains.
The US Dollar Index (DXY), which measures the value of the USD against six major currencies, started strongly and rose near 107.50 in the early Asian session, but gave up most of its gains and fell near 107.00 during the European trading hours.
Renewed fears boosted the appeal of the US dollar (USD) in the Asian session on Tuesday after President-elect Donald Trump threatened to raise tariffs on other North American economies where he expects China to have brought illicit drugs into the United States (US). USA). Trump said he would impose 25% tariffs on Mexico and Canada and an additional 10% on China on top of the 60% already mentioned in his election campaign.
The US dollar resumes its corrective trend, which began on Monday after Trump nominated experienced hedge fund manager Scott Bessent for the position of Treasury Secretary. The USD fell sharply as investors anticipated that Bessent would deliver on the economic agenda while maintaining fiscal discipline and political stability.
Looking ahead, investors will focus on the Federal Open Market Committee (FOMC) Minutes from the monetary policy meeting on November 7, which will be released at 19:00 GMT. At the November policy meeting, the Fed reduced its key interest rates by 25 basis points (bps) to the range of 4.50%-4.75%.
This week, investors will also focus on US Personal Consumption Expenditure Price Index (PCE) data for October, due to be released on Wednesday. Inflation data will influence market speculation on the Federal Reserve’s (Fed) interest rate action at the December meeting. Traders are divided on whether the Fed will cut interest rates by 25 bps or keep them at their current levels next month, according to the CME FedWatch tool.
Daily Market Summary: EUR/USD Rebounds Despite Multiple Headwinds
- EUR/USD manages to recover intraday losses on Tuesday. Still, investors expect the major currency pair to remain on the defensive as European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel cited concerns about economic weakness in the largest economy. of the Eurozone, Germany, in his speech on Monday, Reuters reported.
- “Germany is trapped in a period of economic weakness that has already lasted two and a half years,” Nagel said. He added, “There is likely to be stagnation in the last quarter of this year,” and warned that the economy could fall behind other nations in the bloc.
- Despite citing fears about growth, Nagel supported gradually lowering interest rates to ensure that inflationary pressures are fully controlled. “It is important to be cautious and loosen monetary policy only gradually and not too quickly,” Nagel said.
- Additionally, ECB chief economist Philip Lane praised the bank’s gradual policy easing action in an interview with French newspaper Les Echos on Monday. Lane said inflation remains higher than the ECB wants as a big easing of price pressures comes from moderation in energy costs, while inflation in the services sector remains too much. high.
- To know the current state of inflation in the Eurozone and its main economies, investors will focus on the preliminary data of the Harmonized Index of Consumer Prices (HICP) for November, which will be published on Thursday and Friday. Economists expect the Eurozone’s headline and core HICP – which excludes volatile components such as food, energy, tobacco and alcohol – to have accelerated to 2.4% and 2.9%, respectively, on a year-on-year basis.
Technical Analysis: EUR/USD holds key support at 1.0330
EUR/USD regains strength and bounces near 1.0500 in the European session on Tuesday. The main currency pair continues to hold the short-term low of 1.0330. However, the outlook remains bearish as all short- to long-term exponential moving averages (EMAs) on the daily chart are in decline, pointing to a downtrend.
The 14-day Relative Strength Index (RSI) rebounded after conditions turned oversold. However, the oscillator has cooled down, which could allow the bears to take control again.
Looking down, the Nov 22 low of 1.0330 will be the key support. On the other hand, the November 20 high around 1.0600 will be the key barrier for the Euro bulls.
The Euro FAQs
The Euro is the currency of the 19 countries of the European Union that belong to the eurozone. It is the second most 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 more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2 %).
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the increase or decrease in interest rates. Relatively high interest rates (or the expectation of higher rates) tend to benefit the euro and vice versa. The Governing Council of the ECB makes decisions on monetary policy at meetings held eight times a year. Decisions are made by the directors of the Eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are an important econometric indicator for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their peers often benefit the euro, making the region more attractive as a place for global investors to park their money.
The published data measures the health of the economy and may have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can 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 raise 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 eurozone economies (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
Another important data that is published about 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 during a given period. If a country produces highly in-demand export products, its currency will gain value simply from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
