Euro meets initial resistance around 1.0880 prior to US key data

15 Nov 2023, 17:35 · Views 82

The Euro retreats modestly vs. the US Dollar.
European stocks extend the weekly optimism on Wednesday.
US Producer Prices, Retail Sales take centre stage.

The Euro (EUR) loses some upside momentum against the US Dollar (USD), motivating EUR/USD to give away part of the recent strong gains and revisit the 1.0870 zone on Wednesday.

On the flip side, the Greenback appears mildly bid in the low 104.00s as investors continue to digest Tuesday’s below-consensus US inflation figures and the subsequent steep sell-off in the USD Index (DXY).

The so-far lacklustre advance in the Greenback comes amidst the absence of direction in US yields across the curve, as cautiousness remains high in light of the upcoming release of further inflation measures, this time from Producer Prices, as well as Retail Sales for the month of October.

The publication of weaker-than-expected US CPI reignited speculation of potential interest rate cuts by the Fed, most likely around the summer of 2024.

In the domestic calendar, the European Commission (EC) will release its Autumn Forecasts, while Balance of Trade results are due in the broader euro area.

Daily digest market movers: Euro remains supported by USD-selling

The EUR falters just ahead of 1.0900 vs. the USD.
US and German yields dropped markedly post-US CPI.
Investors anticipate that the Fed could cut rates in June-July 2024.
The ECB is expected to extend its pause well into next year.
FX intervention concerns remain well in place around USD/JPY.
The European Commission publishes its Autumn Forecasts in the region.
US Producer Prices, Retail Sales are next on tap.
UK inflation figures surprised to the downside in October.

Technical Analysis: Euro now faces the next up-barrier at 1.0945

EUR/USD comes under some corrective decline following a move to new lows near 1.0880 on Wednesday.

Next on the upside for EUR/USD emerges the weekly high of 1.0945 (August 30) ahead of the psychological threshold of 1.1000. The surpass of this region could open the door to a visit to the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all preceding the 2023 high of 1.1275 (July 18).

Occasional bouts of weakness could prompt the pair to challenge transitory support at the 55-day SMA at 1.0639, prior to the weekly low of 1.0495 (October 13) and the 2023 low of 1.0448. (October 15).

Looking at the broader picture, while above the 200-day SMA at 1.0802, the pair’s outlook should remain constructive.

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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