- The Euro continues to lose ground against the US dollar.
- European stock markets close a mixed day.
- US Factory Orders Surprise Downward in October.
The Euro (EUR) continues to lose ground against the US Dollar (USD). EUR/USD, which opened Monday around 1.0895, has lost nearly 90 pips on the day, falling back to three-week lows of 1.0804 in the early hours of the American session.
On the contrary, the Dollar appears to be enjoying marked buying interest around 103.85, as measured by the US Dollar Index (DXY), its highest level since November 23.
Taking into account the broader economic picture, investors are considering possible interest rate reductions by both the Federal Reserve (Fed) and the European Central Bank (ECB) in spring 2024.
On the Eurozone agenda, the Germany’s trade surplus rose to €17.8 billion in October and the Sentix confidence indexwhich measures investor confidence in the Eurozone, improved to -16.8 in the month of December, but disappointed expectations that it would stand at -14.4.
On the other side of the ocean, the US factory orders contracted 3.6% monthly in October, worsening the estimated 2.6% decline.
Daily summary of market movements: The Euro weakens and breaks the 200-day SMA
- The Euro begins the week with a fall to three-week lows against the Dollar.
- US yields rebound after sharp pullback on Friday.
- Investors see the Fed reducing its interest rates in the second quarter of 2024.
- The ECB could start cutting rates in spring 2024, according to markets.
- ECB Vice President Luis De Guindos reiterated the bank’s stance of relying on data for future decisions.
- The Eurozone Sentix index improved slightly to -16.8 in December although forecasts worsened.
Technical Analysis: Euro falls below 1.0820
EUR/USD begins the new week with a sharp pullback after breaking the critical 200-day SMA at 1.0818.
After the breakout, the 55-day SMA at 1.0682 could serve as temporary support. However, if this level is also broken, the 1.0495 level (Oct 13) would be exposed, followed by the 2023 low at 1.0448 (Oct 3) and the psychological level of 1.0400.
If occasional bullish attempts occur, they are likely to find immediate resistance at the November high of 1.1017 (Nov 29). This is followed by the August high at 1.1064 (Aug 10) and another weekly top at 1.1149 (July 27). These levels act as hurdles before reaching the 2023 high at 1.1275 (July 18).
Frequently asked questions about the Euro
What is the Euro?
The Euro is the currency of the 20 countries of the European Union that belong to the euro zone. 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 volume 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% ).
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the euro zone. The ECB sets interest rates and manages monetary policy
The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower 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 takes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.
How do inflation data influence the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are important econometric data for the euro. If inflation rises more than expected, especially if it exceeds the 2% target set by the ECB, it is forced to raise interest rates to bring it back under control.
Relatively high interest rates compared to their peers tend to benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How do economic data influence the value of the Euro?
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment 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. Conversely, if economic data is weak, the Euro is likely to fall.
The economic data for the four largest economies in the eurozone (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
How does the trade balance affect the Euro?
Another important 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 during a given period.
If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for 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.
