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Euro recovers ground and approaches 1.08080 ahead of US and Fed data

  • The Euro resumes its upward path against the US dollar.
  • European markets maintain their positive bias so far this Friday.
  • The final CPI for the eurozone equaled the preliminary figures for October.

The Euro (EUR) regains some bullish momentum against the US Dollar (USD), leading the EUR/USD pair to flirt with the 1.0880 zone again during the European session on Friday.

On the other side of the equation, the DXY Dollar Index faces increasing selling pressure and tests the key support at 104.00 amid the widespread upbeat tone in risk appetite and declining US yields across different deadlines. Speculation about the possibility that the Federal Reserve (Fed) will begin to reduce its interest rates around spring 2024 continues to increase and underpins the bearish bias of the USD.

This speculation about possible Fed rate cuts has been accentuated by the publication earlier this week of weaker than expected inflation indicators (CPI and PPI).

On the European calendar, the Eurozone’s final inflation rate showed no surprises after the headline CPI rose 2.9% year-on-year in October and 4.2% for the core CPI.


In the United States, construction permits and housing starts will focus investors’ attention today. Additionally, FOMC Vice Chairman Michael Barr, Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly are scheduled to speak.

Daily Market Summary: Euro Looks to Extend Weekly Gains

  • The Euro appears to be rising against the Dollar on Friday.
  • Yields in the US and Germany extend the decline at the end of the week.
  • Markets believe the Fed will cut rates in the first quarter of 2024.
  • Investors expected a prolonged pause from the ECB.
  • Speculation about foreign exchange intervention continues to swirl around USD/JPY.
  • The ECB’s Villeroy said a pause in the hiking cycle was fully justified.
  • The US real estate sector will focus investors’ attention later in the day.

Technical Analysis: Euro outlook remains constructive above 1.0800

The EUR/USD pair appears to have embarked on a consolidation phase and is trading below 1.0900.

Before reaching the high of 1.0945 (Aug 30) and the psychological level of 1.1000, the next target to watch for EUR/USD is the November high of 1.0895 (Nov 16). Further up, the pair could face the August high of 1.1064 (Aug 10) and another high at 1.1149 (July 27), both prior to the 2023 high at 1.1275 (July 18).

Occasionally, the pair may try to seek temporary support at the 55-day SMA at 1.0639, ahead of the low of 1.0495 (Oct 13) and the 2023 low of 1.0448 (Oct 15).

Longer term, the pair’s outlook should remain favorable as long as it remains above the 200-day SMA at 1.0803.

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

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