EUR/USD has maintained its strength around 1.0850 due to strong GDP growth in the euro area and hot inflation in Germany. ECB President Lagarde expects further interest rate cuts and expressed hope that inflation will return to the central bank’s 2% target. The USD will be influenced by the US presidential election, NFP and ISM Manufacturing PMI data.
Following Wednesday’s sharp recovery, EUR/USD remains hovering around 1.0850 in European trading on Thursday. Traders at December’s monetary policy meeting said the European Central Bank (European Central Bank) Major currency pairs rose as investors refrained from betting on a significant rate cut by the ECB. Inflation exceeds Germany’s expectations.
Eurostat reported on Wednesday that the eurozone expanded 0.9% faster in the third quarter of this year compared to the same period last year. A major contribution to the high growth of the euro area was made by the largest country, Germany, which managed to avoid a technological recession. Germany’s economy surprisingly rose by 0.2% quarter-on-quarter, beating expectations for a 0.1% contraction. Meanwhile, Spain’s growth rate was higher than expected in France, and Italy’s growth rate was slower than expected.
The preliminary German Harmonized Index of Consumer Prices (HICP) accelerated in October to 2.4% year-on-year, faster than the expected 2.1% and the previously announced 1.8%, suggesting the fight against inflation is not over yet. did.
Analysts at ING said, “The just-released preliminary figures for Germany’s inflation rate for October have encouraged some ECB members to be more open to this rate cut and the European Central Bank’s renewed aggressive rate cuts. You may regret it.”
For further clues on the current state of inflation, investors will keep an eye on October’s preliminary Eurozone HICP data, which will be released at 10pm Japan time.
Meanwhile, ECB President Christine Lagarde expressed confidence in containing price pressures in an interview with French newspaper Le Monde published on Thursday. “We’re on target, but I’m not going to say that inflation is under control,” Lagarde said. He reaffirmed his commitment to lower interest rates, but declined to commit to a specific rate cut path.
Daily Digest Market Movement: EUR/USD is steady despite the US dollar being firm
The EUR/USD pair has maintained its appreciation around 1.0850 due to the positive GDP statistics of the euro area. Although higher GDP growth in the euro area has made the euro more attractive, its prospects remain at risk amid uncertainty ahead of the US presidential election. Traders appear to be pricing in former President Donald Trump’s victory over current Vice President Kamala Harris, who will raise tariffs on all imports by 10%, hurting the eurozone’s strong exports. This scenario is expected to have a significant impact on the euro area economy. sector. President Trump said this week that if he wins the Nov. 5 election, the European Union “will have to pay a heavy price” for not buying enough U.S. exports, according to Reuters. Meanwhile, the U.S. dollar (USD) is trading within a narrow range, with investors focused on October US Nonfarm Payrolls (NFP) and ISM Manufacturing PMI data to be released on Friday. Economic data will influence market speculation about the Federal Reserve’s rate cut path. Personal consumption expenditure (PCE) price index data for September is also expected to be released later on Thursday, but Wednesday’s US GDP report has already released the overall numbers for the third quarter, so there will be some market volatility. The impact is expected to be limited. The job market situation appears to be improving, according to the ADP indicator on private employment released on Wednesday. The report showed solid labor demand, with 233,000 new jobs added in October compared to 159,000 in September.
Technical analysis: EUR/USD tries to maintain above 1.0800
The euro/dollar pair was close to a nearly one-week high of 1.0850 during European trading. The major currency pair sustained its recent recovery after breaking through the round level resistance at 1.0800. However, the broader outlook remains bearish as it remains below the 200-day exponential moving average (EMA) around 1.0900.
After hovering in the 20.00-40.00 range for almost a month, the 14-day Relative Strength Index (RSI) rose to near 42.00, suggesting the bearish momentum is over.
On the upside, the common currency pair could rise to near the 200-day EMA at around 1.0900 and the September 11 low at around 1.1000. On the downside, the upward trend line around 1.0750, drawn from the April 16 low around 1.0600, will be an important support area for euro bulls.
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world, accounting for an estimated 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%). ) and so on.
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB’s main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means is to raise or lower interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro, and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB’s 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, as it makes the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an 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. This could not only attract more foreign investment but also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area’s four largest economies (Germany, France, Italy and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.