- The Euro is trading within a narrow range against the US Dollar.
- Stock markets in Europe open Wednesday’s session with losses.
- EUR/USD is trading without a clear direction below 1.0500.
- The US Dollar Index DXY is hovering around the 107.00 area.
- The focus of investors will be on the services PMIs in Europe and on Christine Lagarde, president of the ECB.
- In the United States, the ADP report and the ISM services PMI capture the attention of investors.
The Euro (EUR) moves without a clear direction against the US Dollar (USD), leading the EUR/USD pair to revolve around the 1.0470 area early in the European morning on Wednesday.
On the Dollar side, the DXY Dollar Index clings to the 107.00 zone after reaching new 2023 highs on Tuesday in the 107.30-107.35 band, always supported by the uninterrupted upward movement of US yields throughout the curve.
Taking a look at monetary policy, we see that the Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) before the end of the year, according to investors. Simultaneously, rumors continue in the markets about a possible stoppage in the monetary policy changes of the European Central Bank (ECB), despite inflation levels above the entity’s target and growing fears about a future recession or Possibly stagflation in the area.
On the national calendar, the latest PMIs for the services sector will be published, as well as a speech by ECB President Christine Lagarde.
As for the US data, first will be the weekly MBA mortgage applications, followed by the ADP employment change, the final S&P Global services PMI readings, factory orders and the always relevant services PMI of the ISM.
Daily summary of market drivers: Euro seems unable to gain upward momentum
- The common currency is slightly bullish against the Dollar during the trading session on Wednesday.
- US and German yields look set to extend bullish momentum.
- Investors expect the Fed to raise interest rates once again before the end of the year.
- Markets expect the ECB’s tightening campaign to stop.
- Andrew Bailey, Governor of the BoE, rules out changing the central bank’s inflation target.
- Speculation surrounding currency intervention in the USD/JPY continues to rise.
Technical Analysis: Additional losses are not ruled out
EUR/USD now appears to be consolidating near the area of ​​recent yearly lows below 1.0500.
On the downside, the loss of the 2023 low of 1.0448 (Oct 3) should lead EUR/USD to find next support at the round 1.0300 level before minor support at the lows of 1.0290 (Nov 30, 2022 ) and 1.0222 (November 21, 2022).
In case of occasional bullish attempts, the pair should find the next bullish barrier at 1.0617 (September 29) before the high of 1.0767 (September 12), before reaching the crucial 200-day SMA at 1.0825. If the pair breaks this level, it could challenge the high of 1.0945 (Aug 30) and the psychological barrier of 1.1000. Breaking the latter could lead the pair to test the August high at 1.1064 (Aug 10) before the high at 1.1149 (July 27) and the 2023 high at 1.1275. (July 18).
However, it is essential to remember that as long as EUR/USD remains below the 200-day SMA, there is a possibility of further negative pressure.
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.
