Euro hits 11-week highs around 1.0830

• The Euro flirts with three-month highs against the Dollar.
• European stocks sail in a “sea of ​​green” on Tuesday.
• US inflation figures surprised on the downside in October.

He Euro (EUR) receives additional bullish momentum against the US Dollar (USD), encouraging the EUR/USD pair to advance to 3-month highs around 1.0830 on Tuesday.

On the other hand, the USD sinks well below the support of 105.00 as measured by the USD Index (DXY), or eight-week lows, amid the continuation of the decline from last week’s high around 106.00 and growing speculation of rate cuts by the Fed as soon as summer 2024.

The pronounced dollar chain reaction comes amid further weakness in US yields across different tenors, and is particularly exacerbated after US inflation figures fell more than expected in October . In fact, according to the CPI, US consumer prices are up 4.0% annualized and 3.2% year-on-year when it comes to the underlying reading (excluding food and energy costs).

As for the European Central Bank (ECB), the latest opinions from Council members continue to point to a prolonged pause in the current restrictive stance, as inflation remains on the rise and well above the target.

The strength of the single currency was also reinforced by improving economic sentiment in both Germany and the Eurozone, which stood at 9.8 and 13.8 respectively for the current month. As far as the Euro bloc is concerned, another revision of the GDP growth rate, which contracted by 0.1% quarter-on-quarter in the third quarter and grew by 0.1% in the last twelve months.

Daily summary of market movements: Euro regains balance as Dollar plummets

The Euro crosses the key barrier of 1.0800 against the Dollar.
US and German yields accelerate their daily decline.
Investors anticipate that the Fed could begin cutting rates in June-July 2024.
The ECB appears to have reached a dead end in its tightening cycle.
Fear of intervention in the currency market continues to hover over USD/JPY.
The US inflation rate came in below estimates in October.
The British labor market report surprised on the upside.

Technical analysis: The Euro is now looking for 1.0945

EUR/USD maintains the constructive stance and trades within a considerable distance of the key 1.0800 barrier on Tuesday.

EUR/USD could challenge the weekly high of 1.0945 (Aug 30) if the recovery continues. The psychological threshold of 1.1000 is followed by the August high of 1.1064 (Aug 10) and another weekly high of 1.1149 (July 27), which precede the 2023 high of 1.1275 (July 18).

If sellers regain control, the pair could find temporary support at the 55-day SMA at 1.0637, ahead of the weekly low of 1.0495 (Oct 13) and the 2023 low of 1.0448. (October 15th).

A further decline in the pair is expected as long as it continues to trade below the 200-day SMA.

(This story was corrected on November 14 at 15:13 GMT to indicate that the 55-day SMA is support, not resistance and that EUR/USD is advancing to 11-week highs, not 11-month highs.)

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 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 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 makes 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, making the region more attractive as a place for global investors to park their money.

How do economic data influence the value of the Euro?

The published data measures the health of the economy and can influence 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. Conversely, if economic data is weak, the Euro is likely to fall. The economic data for the four largest Eurozone economies (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 data 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 exports, 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.