EUR/USD trades with modest gains above mid-1.0800s amid modest USD downtick
- EUR/USD gains positive traction for the second straight day, albeit lacking bullish conviction.
- A fresh leg down in the US bond yields undermines the USD and lends support to the major.
- The upside remains capped as traders now keenly await this week’s crucial inflation figures.
The EUR/USD pair is seen building on the previous day's goodish rebound from the 1.0815-1.0810 region and gaining some positive traction for the second straight day on Tuesday. Spot prices stick to modest gains through the early European session and remain supported by diminishing odds for rapid interest rate cuts by the European Central Bank (ECB). This, along with the prevalent selling bias around the US Dollar (USD), is seen as another factor acting as a tailwind for the currency pair.
That said, nervousness about the Eurozone's darkening economic outlook might hold back bulls from placing aggressive bets around the shared currency. Adding to this, the Federal Reserve's (Fed) higher-for-longer interest rates narrative should help limit the downside for the Greenback and further contribute to capping the upside for the EUR/USD pair. Investors also prefer to wait on the sidelines ahead of this week's releases of key inflation data from the Eurozone and the United States (US).
The flash CPI estimates from Germany, France and Spain are due for release on Thursday, which will be followed by the US Personal Consumption Expenditures (PCE) Price Index. Apart from this, Friday’s closely watched Eurozone inflation data will play a key role in influencing the shared currency and provide some meaningful impetus to the EUR/USD pair ahead of the upcoming ECB policy meeting on March 7.
Daily digest market movers: Remains supported by reduced ECB rate-cut bets, softer USD
- The recent hawkish comments by European Central Bank (ECB) policymakers, suggesting that the central bank shouldn’t rush into a decision to cut interest rates, continue to underpin the shared currency.
- ECB President Christine Lagarde told lawmakers that wage pressures remain strong across the region and are anticipated to be an increasingly important driver of inflation dynamics in the coming quarters.
- Lagarde added that there are increasing signs of a bottoming-out in growth and some forward-looking indicators point to a pick-up later this year, pushing back market expectations for early interest rate cuts.
- The yield on the benchmark 10-year US government bond remains depressed near 4.275%, which is seen undermining the US Dollar and lending additional support to the EUR/USD pair on Tuesday.
- A looming recession risk in Germany – the Eurozone's largest economy – keeps a lid on any further gains for the Euro amid expectations that inflation is moving back towards the ECB’s 2% annual target.
- The FOMC meeting minutes released last week, along with several Federal Reserve officials, suggested that the US central bank will keep rates higher for longer amid sticky inflation and a resilient economy.
- Traders now look to the US macro data – Durable Goods Orders, the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index – for short-term opportunities on Tuesday.
- The focus, however, remains glued to this week's release of the closely-watched flash Eurozone consumer inflation figures and the US Personal Consumption Expenditures (PCE) Price Index.
Technical analysis: EUR/USD seems poised to appreciate further and climb beyond 1.0900 mark
From a technical perspective, the overnight close above the 200-day Simple Moving Average (SMA) and the subsequent move up favours bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction, suggesting that the path of least resistance for the EUR/USD pair is to the upside. That said, it will still be prudent to wait for some follow-through buying beyond the 1.0865 region, or the 38.2% Fibonacci retracement level of the December-February downfall before positioning for any further gains. Spot prices might then surpass last week's swing high, around the 1.0885-1.0895 region, and aim to test the 50% Fibo. level, around the 1.0920 zone. The momentum could extend further towards reclaiming the 1.1000 psychological mark for the first time since January 11.
On the flip side, the 200-day SMA resistance breakpoint, around the 1.0830-1.0825 region, now seems to protect the immediate downside ahead of the 1.0800 mark. The latter coincides with the 23.6% Fibo. level, which if broken decisively will negate the positive outlook and make the EUR/USD pair vulnerable to accelerate the fall towards the 1.0770-1.0765 area. Spot prices could eventually drop to retest sub-1.0700 levels, or a three-month low touched on February 14.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF |
| USD | -0.34% | -0.15% | -0.09% | 0.15% | -0.14% | 0.22% | -0.22% |
| EUR | 0.34% | 0.19% | 0.25% | 0.48% | 0.19% | 0.57% | 0.12% |
| GBP | 0.15% | -0.20% | 0.05% | 0.28% | -0.01% | 0.37% | -0.08% |
| CAD | 0.10% | -0.25% | -0.06% | 0.24% | -0.07% | 0.32% | -0.13% |
| AUD | -0.15% | -0.48% | -0.28% | -0.23% | -0.27% | 0.09% | -0.38% |
| JPY | 0.16% | -0.18% | 0.05% | 0.07% | 0.31% | 0.39% | -0.07% |
| NZD | -0.23% | -0.57% | -0.37% | -0.32% | -0.09% | -0.38% | -0.45% |
| CHF | 0.23% | -0.12% | 0.07% | 0.13% | 0.38% | 0.07% | 0.45% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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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