- Euro reclaims the area beyond the key 1.1000 barrier vs. the US Dollar.
- Stocks in Europe en route to a mixed close on Friday.
- EUR/USD surpasses 1.1000 as investors digest July NFP.
- The USD Index (DXY) breaches the 102.00 support to three-day lows.
- Retail Sales in the euro area contracted 1.4% YoY in June.
- The US economy created fewer jobs than estimated in July.
Fresh buying interest now pushes the Euro (EUR) back to the area above the psychological 1.1000 mark against the US Dollar (USD) on Friday, pushing EUR/USD to fresh four-day highs near 1.1030, as market participants continue to assess the release of the US Nonfarm Payrolls (+187K) for the month of July.
On the flip side, the Greenback rapidly loses traction and drops to new lows in the sub-102.00 zone when gauged by the USD Index (DXY), all against the backdrop of the U-turn in US yields across the curve.
The sudden knee-jerk in the dollar came after Nonfarm Payrolls figures showed the US economy added 187K jobs in July (vs. 200K expected), while the Unemployment Rate ticked lower to 3.5% and the Average Hourly Earnings – a proxy for wage inflation – held steady at 4.4% over the last twelve months.
The release of the US jobs report gained importance as of late, as the Federal Reserve has recently emphasized its reliance on economic data for its decisions, as highlighted during its event on July 26.
Currently, there is a lot of speculation that the Fed’s rate hike in July might have been its last for the foreseeable future. Additionally, the possibility of the European Central Bank (ECB) implementing further tightening measures beyond the summer seems to be losing momentum. Somewhat propping up the latter, the ECB published an article earlier on Friday suggesting that underlying inflation could have peaked in the first half of the year.
Daily digest market movers: Euro extends the bounce beyond the 1.1000 mark
- The EUR accelerates its gains vs. the USD following US Payrolls.
- The upside bias in the USD Index deflated near 102.80.
- CME Group’s FedWatch Tool sees no rate hikes by the Fed in H2 2023.
- Speculation that the Fed might have ended its hiking cycle runs high.
- The ECB hints at the idea that inflation peaked in H1 2023.
- ECB’s P. Lane subscribes to the idea of lower inflation in the next months.
Technical Analysis: Euro looks well supported near 1.0900
EUR/USD now gathers extra pace and manages to retake the 1.1000 mark and above, opening the door to a potential move to the weekly peak near 1.1150 in the short-term horizon.
The loss of the 1.0920 region, where the provisional 55-day and 100-day SMAs converge, leaves EUR/USD vulnerable to a probable drop to the July low of 1.0833 (July 6) ahead of the key 200-day SMA at 1.0742 and the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).
On the other hand, occasional bullish attempts could motivate the pair to initially dispute the weekly top at 1.1149 (July 27). Above this level, the downside pressure could mitigate somewhat and could encourage the pair to test the 2023 high at 1.1275 (July 18). Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 (February 10), which is closely followed by the round level of 1.1500.
Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.
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.
