Euro remains offered and drops to new yearly lows near 1.0460

03 Oct 2023, 15:47 · Views 51

The Euro succumbs to further US Dollar’s strength.
Stocks in Europe open Monday’s session on the defensive.
EUR/USD retreats to new 2023 lows around 1.0460.
The USD Index (DXY) advances to fresh tops north of 107.00.
JOLTs Job Openings will take centre stage later in the session.

The Euro (EUR) accelerates its losses against the US Dollar (USD), dragging EUR/USD to the area of new YTD lows around 1.0460 on Tuesday.

In the meantime, the march north in the Greenback remains everything but abated for yet another session, navigating past the 107.00 hurdle when measured by the USD Index (DXY) for the first time since late November 2022. It is worth noting that the index has entered its 12th consecutive week of gains.

The monetary policy outlook remains unchanged, as investors maintain their expectation of a 25-bps interest rate hike by the Federal Reserve (Fed) before the year concludes. Simultaneously, market discussions persist regarding a potential halt in policy adjustments at the European Central Bank (ECB), despite inflation levels surpassing the bank's target and growing concerns about a potential recession or even stagflation in the region.

The lack of data releases in the domestic docket leaves attention to the publication of the JOLTs Job Openings for the month of August and the IBD/TIPP Economic Optimism index.

Daily digest market movers: Euro remains well under pressure on USD-buying

The EUR extends the retracement vs. the USD.
US and German yields appear slightly bid so far on Tuesday.
Markets anticipate one further rate rise by the Fed before the end of the year.
Investors anticipate a stalemate in the ECB's tightening drive.
The RBA left the OCR unchanged at 4.10%, as expected.
Concerns about FX intervention remain strong around USD/JPY.

Technical Analysis: Next on the downside emerges 1.0290

EUR/USD faces increasing selling pressure and prints new lows for the year in the 1.0460/55 band on Tuesday.

On the downside, the continuation of the downward should prompt EUR/USD to meet the next support at the round level of 1.0300 prior to minor support at the weekly lows of 1.0290 (November 30 2022) and 1.0222 (November 21 2022).

In case of occasional bullish attempts, the pair should encounter the next up-barrier at the weekly high of 1.0767 (September 12), before reaching the crucial 200-day SMA at 1.0825. If the pair breaks beyond this level, it may set up a challenge of the weekly top at 1.0945 (August 30) and the psychological barrier of 1.1000. The surpass of the latter might prompt the pair to test the August peak of 1.1064 (August 10) ahead of the weekly high of 1.1149 (July 27) and the 2023 top of 1.1275. (July 18).

However, it is critical to remember that as long as the EUR/USD remains below the 200-day SMA, the possibility of more negative pressure exists.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all 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 put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data 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 over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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