- The Euro is trading around 1.0540, with no clear direction against the US Dollar.
- Stock markets in Europe are sailing in a “sea of red” so far this Thursday.
- The US Dollar Index DXY faces some range-bound trading near 106.60.
- Investors’ attention is expected to focus on Fed Chairman Jerome Powell’s speech.
- The US economic calendar will feature statements from Chairman Powell, weekly initial jobless claims and the Philadelphia Fed manufacturing index.
The Euro (EUR) is trading in a limited range against the US Dollar (USD), with the EUR/USD pair advancing slightly around 1.0540 during the European session on Thursday.
The DXY Dollar Index remains in the mid-106.00 zone amid the relentless upward march of US yields across different maturities. Additionally, investors maintain a cautious approach ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech and the ongoing geopolitical ferment.
Keeping the focus on monetary policy, investors currently expect the Fed to maintain its stance of making no changes to interest rates for the remainder of the year.
Meanwhile, financial market investors are considering the likelihood that the European Central Bank (ECB) will also end its rate-hiking cycle, despite inflation levels above the central bank’s target and rising fears about the possibility of an economic slowdown or stagflation.
Turning to the eurozone calendar, business confidence among manufacturing in France fell to 98 points in October.
On the US economic agenda, Chairman Powell will discuss the economic outlook at the Economic Club of New York, while FOMC Vice Chairman Philip Jefferson, Chicago Fed President Austan Goolsbee, Atlanta Fed President Austan Goolsbee, Raphael Bostic, FOMC Vice Chairman Michael Barr and Philadelphia Fed President Patrick Harker will speak later in the American session.
In addition, weekly jobless claims, the Philadelphia Fed manufacturing index, the CB flash index, existing home sales and the monthly budget report will be published.
Daily summary of market drivers: The Euro moves aimlessly around 1.0540
- The Euro is trading with an erratic tone against the Dollar.
- Yields in the US and Germany continue to rise.
- Markets are focused on Fed tightening.
- Investors believe that the ECB will not tighten its monetary policy until the third quarter of 2024.
- Geopolitical concerns continue to rise in the Middle East.
- The Australian jobs report for September was mixed.
- All attention will be focused on Powell’s speech on Thursday.
Technical Analysis: The next support for the Euro is located at 1.0450
EUR/USD is trading indecisively around 1.0540 against the backdrop of lack of direction in the Dollar.
If the uptrend continues, EUR/USD could test the October 12 high at 1.0639, ahead of the September 20 high at 1.0736 and the important 200-day SMA at 1.0819. Breaking above this level could signal a push to break above the August 30 high at 1.0945 and reach the psychological level of 1.1000. If it breaks back above the August 10 high of 1.1064, the pair could approach the July 27 high of 1.1149 and perhaps the July 18 2023 high of 1.1275.
If selling pressure returns, the 2023 low of 1.0448 from October 3 and key support at 1.0400 could be revisited. If this level is broken, the lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022) could be retested.
The risk of sustained negative pressure persists as long as EUR/USD remains below the 200-day SMA.
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.
