Euro extends the rebound past 1.0700 prior to EMU data, US CPI

14 Nov 2023, 17:47 · Views 43

The Euro advances modestly vs. the US Dollar.
European stocks opened mostly with decent gains.
US inflation figures, flash EMU Q3 GDP next of note in the docket.

The Euro (EUR) accelerates its gains against the US Dollar (USD), motivating EUR/USD to surpass the 1.0700 yardstick during Tuesday’s morning in the old continent.

On the other hand, the Greenback drifts lower and revisits the 105.60 area when measured by the USD Index (DXY) amidst the continuation of the gradual decline from last week’s top around 106.00.

The corrective knee-jerk in the Dollar comes amidst further weakness in US yields across different timeframes, always against the backdrop of a persistent discrepancy between recent hawkish statements from the Federal Reserve and investors' views suggesting a prolonged pause in the Fed's normalization program.

Around the European Central Bank (ECB), recent views from Council members keep pointing to a prolonged pause of the current restrictive stance as inflation continues to run hot and well above the target.

Daily digest market movers: Euro regains pace and trespasses 1.0700

The EUR breaks above the key 1.0700 mark vs. the USD.
Further decline looks favoured in both US and German yields.
Investors anticipate that the Fed will not raise interest rates in December.
The ECB appears to have reached a stalemate in its tightening drive.
Fears of FX intervention keep hovering around USD/JPY.
Next on tap in the euro area come the Economic Sentiment.
US Inflation Rate will be the salient event later in the session.
UK labour market report surprised to the upside.

Technical Analysis: Euro is expected to meet the next up-barrier near 1.0750

EUR/USD maintains the constructive stance and breaks above the key 1.0700 hurdle on Tuesday.

EUR/USD may return the November high of 1.0754 (November 6) before hitting the 200-day SMA at 1.0801 and the weekly top of 1.0945 (August 30) if the recovery continues. The psychological threshold of 1.1000 is followed by the August peak of 1.1064 (August 10) and another weekly high of 1.1149 (July 27), both of which precede the 2023 top of 1.1275 (July 18).

If sellers retake control, the pair may find temporary resistance at the 55-day SMA at 1.0637, ahead of the weekly low of 1.0495 (October 13) and the 2023 low of 1.0448. (October 15).

So far, additional decline in the pair is expected as long as it continues 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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