Euro appears mildly bid near the 1.0600 barrier

23 Oct 2023, 16:09 · Views 58

The Euro clings to daily gains vs. the US Dollar.
Stocks in Europe open in a mixed tone on Monday.
EUR/USD’s upside remains limited around the 1.0600 zone so far.
The USD Index (DXY) extends its range bound theme in the low 106.00s.
EMU’s flash Consumer Confidence is due in the domestic docket.
The Chicago Fed National Activity Index comes next in the US calendar.

The Euro (EUR) is showing a slight strength against the US Dollar (USD), causing EUR/USD to keep the trade around the 1.0600 region at the beginning of the week.

Meanwhile, the Greenback is managing to regain some stability and modestly advance towards the low-106.00s when tracked by the USD Index (DXY). This price action comes in tandem with a tepid bounce in US yields across different maturities and a knee-jerk reaction in market sentiment towards riskier assets.

In terms of monetary policy, market participants are now expecting the Federal Reserve (Fed) to maintain its current stance of keeping interest rates unchanged at the November 1 event. This view was reinforced by comments from Fed Chair Jerome Powell at his appearance at the Economic Club of New York last Thursday.

At the same time, investors are contemplating the possibility of the European Central Bank (ECB) discontinuing certain policy measures. This comes despite inflation levels surpassing the bank's target and growing concerns about the risk of a slowdown or stagflation in the European zone's economy.

In the euro docket, the European Commission (EC) will publish its advanced gauge of the Consumer Confidence for the euro area for the current month.

In the US data space, the only release will be the Chicago Fed National Activity Index for the month of September.

Daily digest market movers: Euro looks flat and looks to risk trends, geopolitics

The EUR gathers some traction vs. the USD on Monday.
US and German yields look slightly bid early in the European session.
Investors see the Fed keeping its interest rate unchanged in November.
Market expectations suggest that the ECB
ECB is likely to encounter a stalemate in its interest rate hiking cycle.
Geopolitical concerns in the Middle East remain in centre stage.

Technical Analysis: Euro’s outlook remains negative below the 200-day SMA

The EUR/USD keeps the consolidative mood well in place below the 1.0600 region at the beginning of the week.

If the bullish trend continues, EUR/USD may test the October high of 1.0639 (October 12), before moving on to the weekly top of 1.0736 (September 20) and the critical 200-day SMA of 1.0816. A break above this level might indicate a push to the weekly peak of 1.0945 (August 30), ahead of the psychological threshold of 1.1000. Any more advances might reintroduce a challenge of the August high of 1.1064 (August 10) before reaching the weekly top of 1.1149 (July 27) and potentially the 2023 peak of 1.1275 (July 18).

If the selling tendency returns, there is an immediate support at the weekly low of 1.0495 (October 13) prior to the 2023 low of 1.0448 (October 3), all before the round level of 1.0400. If this zone is violated, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 30, 2022) may be retested (November 21, 2022).

It is crucial to recall that the risk of sustained negative pressure persists as long as the EUR/USD remains below the 200-day SMA.

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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