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- EUR/USD finally revisited the 1.0900 region, printing multi-week highs.
- The Fed is now seen cutting rates twice in H2 2024.
- The ECB is predicted to keep its rates unchanged on July 18.
Another auspicious week saw EUR/USD trade with decent gains and extend its positive streak for the third consecutive week, including a visit to the key 1.0900 region for the first time since early June.
It was all about the Fed and US data
The firm weekly performance of the European currency and most of the risk-linked galaxy came in response to the marked deterioration of the Dollar’s outlook. Indeed, when tracked by the US Dollar Index (DXY), the Greenback accelerated its monthly downward bias to the area of five-week lows near the 104.00 yardstick pari passu with reignited expectations that the US Federal Reserve (Fed) might trim its interest rates twice this year (vs. the view of just one rate reduction projected by the Committee at its latest gathering).
The above was markedly reinforced by another confirmation of disinflationary pressures in the US economy after the Consumer Price Index (CPI) rose less than estimated in June. That, plus the ongoing cooling of the US labour market, prompted investors to start pencilling in two (or even three) interest rate cuts in the latter half of the year.
On top of that, at his semi-annual testimonies before Congress, Fed Chair Jerome Powell reiterated that the Committee needs to see further progress on inflation heading towards the Fed’s 2% target before considering an interest rate reduction. Despite Powell’s message aligning with previous statements, he gave no indication of the potential timing for a rate cut.
And what about the ECB?
There was a radio silence from the European Central Bank (ECB) throughout the week, with the exception of Dutch central bank Chief Klaas Knot, who suggested that there was no case for the central bank to cut interest rates this month, but the September meeting would be “open” and market expectations for further easing were appropriate for now.
In addition, ECB Governing Council member Fabio Panetta also argued earlier in the week that the bank could continue to gradually reduce interest rates without jeopardizing the current fall in inflation.
EUR gains should remain temporary
The sharp correction in the Greenback has been lending much-needed oxygen to the single currency and the rest of its risky peers, therefore underpinning the robust bounce in EUR/USD seen as of late.
However, the perceived deceleration of key US fundamentals, namely inflation and employment, did not change the fact that the biggest economy in the world is indeed heading towards a soft landing, and its outlook remains far from dented.
Factoring in the above and adding the political component of a probable second presidency by Donald Trump, the ongoing weakness of the Dollar should be perceived as transitory, allowing for a rebound of the currency in the not-so-distant future.
EUR/USD technical outlook
By surpassing the key 200-day SMA, EUR/USD has opened the door to the potential continuation of the uptrend in the short-term horizon. Against that backdrop, there is an immediate barrier at the July high of 1.0900 (July 11), closely followed by the June top of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Once the pair clears the latter, it could confront the psychological 1.1000 milestone, which precedes the December 2023 high of 1.1139 (December 28).
In case sellers regain the initiative, spot should meet decent contention at the 200-day SMA at 1.0803. The loss of this region should expose further weakness and, thus, a probable move to the June low of 1.0666 (June 26), ahead of the May low of 1.0649 (May 1) and the 2024 bottom of 1.0601 (April 16).
Euro FAQs
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%).
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.
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.
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.
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.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- EUR/USD finally revisited the 1.0900 region, printing multi-week highs.
- The Fed is now seen cutting rates twice in H2 2024.
- The ECB is predicted to keep its rates unchanged on July 18.
Another auspicious week saw EUR/USD trade with decent gains and extend its positive streak for the third consecutive week, including a visit to the key 1.0900 region for the first time since early June.
It was all about the Fed and US data
The firm weekly performance of the European currency and most of the risk-linked galaxy came in response to the marked deterioration of the Dollar’s outlook. Indeed, when tracked by the US Dollar Index (DXY), the Greenback accelerated its monthly downward bias to the area of five-week lows near the 104.00 yardstick pari passu with reignited expectations that the US Federal Reserve (Fed) might trim its interest rates twice this year (vs. the view of just one rate reduction projected by the Committee at its latest gathering).
The above was markedly reinforced by another confirmation of disinflationary pressures in the US economy after the Consumer Price Index (CPI) rose less than estimated in June. That, plus the ongoing cooling of the US labour market, prompted investors to start pencilling in two (or even three) interest rate cuts in the latter half of the year.
On top of that, at his semi-annual testimonies before Congress, Fed Chair Jerome Powell reiterated that the Committee needs to see further progress on inflation heading towards the Fed’s 2% target before considering an interest rate reduction. Despite Powell’s message aligning with previous statements, he gave no indication of the potential timing for a rate cut.
And what about the ECB?
There was a radio silence from the European Central Bank (ECB) throughout the week, with the exception of Dutch central bank Chief Klaas Knot, who suggested that there was no case for the central bank to cut interest rates this month, but the September meeting would be “open” and market expectations for further easing were appropriate for now.
In addition, ECB Governing Council member Fabio Panetta also argued earlier in the week that the bank could continue to gradually reduce interest rates without jeopardizing the current fall in inflation.
EUR gains should remain temporary
The sharp correction in the Greenback has been lending much-needed oxygen to the single currency and the rest of its risky peers, therefore underpinning the robust bounce in EUR/USD seen as of late.
However, the perceived deceleration of key US fundamentals, namely inflation and employment, did not change the fact that the biggest economy in the world is indeed heading towards a soft landing, and its outlook remains far from dented.
Factoring in the above and adding the political component of a probable second presidency by Donald Trump, the ongoing weakness of the Dollar should be perceived as transitory, allowing for a rebound of the currency in the not-so-distant future.
EUR/USD technical outlook
By surpassing the key 200-day SMA, EUR/USD has opened the door to the potential continuation of the uptrend in the short-term horizon. Against that backdrop, there is an immediate barrier at the July high of 1.0900 (July 11), closely followed by the June top of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Once the pair clears the latter, it could confront the psychological 1.1000 milestone, which precedes the December 2023 high of 1.1139 (December 28).
In case sellers regain the initiative, spot should meet decent contention at the 200-day SMA at 1.0803. The loss of this region should expose further weakness and, thus, a probable move to the June low of 1.0666 (June 26), ahead of the May low of 1.0649 (May 1) and the 2024 bottom of 1.0601 (April 16).
Euro FAQs
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%).
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.
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.
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.
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.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
