- EUR/USD started Friday with encouraging gains, but fell again.
- European inflation figures showed contraction at the near end of the curve.
- Monthly core HICP inflation fell to its lowest level since February.
EUR/USD started Friday with a slight rally towards the 1.0600 area, as broader markets took advantage of the holiday session in the US to sell the Dollar and buy riskier assets, but another contraction in the key figures of Pan-European inflation stopped the Euro bulls. Despite an intraday weakening of the Euro’s stance, EUR/USD is poised for its first weekly gain in a month.
According to the Harmonized Index of Consumer Prices (HICP), European headline inflation fell to -0.3% in November, down from 0.3% the previous month. Core HICP inflation also declined to -0.6% month-on-month compared to 0.2% previously, taking monthly core inflation measures into contraction territory for the third time this year and the lowest level since February.
Annualized HICP inflation rose, with core HICP inflation rising to 2.8% year-on-year from 2.7% previously, but the rise in annual inflation is likely due to previous ups and downs as the European Central Bank (ECB) struggles with fluctuations of inflation. ECB officials noted that still-declining inflation metrics are favorable for further rate cuts. However, an overly steep inflation decline curve is raising concerns among investors about a deeper slowdown in the broader European economy.
EUR/USD Price Forecast
The Euro’s bullish turn from two-year lows is already running into trouble as intraday bids hit the 1.0600 zone. Bullish momentum has achieved a moderate 2.5% recovery from November bid lows near 1.0330, but momentum remains limited. Looking higher, the 50-day EMA is rapidly descending through 1.0750 while the 200-day EMA heads into bearish territory near 1.0840.
EUR/USD Daily Chart
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 counterparts tend to 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.
