Euro dips as US jobs data boosts the Dollar despite Fed-cut buzz
- US Initial Jobless Claims dropped sharply, strengthening the Dollar’s position against the Euro.
- Traders now see an 85% chance for a Federal Reserve rate cut next week.
- ECB President Lagarde expects Eurozone inflation to remain near 2% in coming months.
Euro retreats somewhat on Thursday as traders digest the last round of US jobs data as they also brace for the release of the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index. At the time of writing, the EUR/USD trades at 1.1649, down 0.19%.
EUR/USD poised for further upside on possible Fed rate cut
The financial markets narrative hasn’t changed, as investors are waiting for December 10, the Fed’s D day. Economic data in the US was a tailwind for the Dollar, as Initial Jobless Claims for the week ending November 29 dipped sharply, an indication that the labor market is still firm.
Contrarily, the Challenger Jobs Cut data reported that employers cut over 70,000 jobs in November, its highest level for that month since 2022.
Given the fundamental backdrop, traders priced in an 85% chance for a Fed rate cut next week. Nevertheless, this could change if the release of the Fed’s favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index for September, surpasses the 3% threshold on Friday.
For the Euro, the main supporter is the European Central Bank (ECB) which set interest rates at around 2%, hinted that the easing cycle was over and Lagarde’s remarks on Wednesday, when she said, “inflation to stay near 2% in months ahead.”
Data-wise Retail Sales in the Eurozone exceeded estimates in October, and Construction PMI readings for the EZ, Germany, France and Italy, improved, despite remaining in contractionary territory.
Daily market movers: Euro boosted by Lagarde’s comments, weak Dollar
- The Dollar is poised to weaken further, yet as of writing, the US Dollar Index (DXY), which tracks the buck’s performance against six major currencies, gains 0.19% up at 99.05.
- Initial Jobless Claims for the week ending November 29 were 191K, lower than the estimated 220K and last week's revised 218K. Continuing Claims for November 22 fell to 1.939 million from 1.943 million the prior week.
- According to Challenger, Gray & Christmas, employers reported 71,321 job cuts in November. This figure represents a 24% increase compared to the same period last year, but a 53% decrease from the number recorded in October of this year.
- ECB’s President Lagarde added that the EZ economy is in good shape due to a steady household spending and a resilient labor market. The central bank is expected to hold rates unchanged at the December 18 meeting.
Technical analysis: EUR/USD holds steady within new range amid fading momentum
The EUR/USD despite dipping, remains stable at around the 1.1650 area for four consecutive sessions, establishing a new trading range between this threshold and 1.1700. Buying momentum has faded as depicted by the Relative Strength Index (RSI), putting in danger a possible test of the 1.1800 figure, before traders could challenge the year-to-date (YTD) high at 1.1918.
Should the EUR/USD decline below 1.1650, initial support is provided by the 50-day Simple Moving Average (SMA) at 1.1610, followed by the 20-day SMA at 1.1589, and subsequently at 1.1500.
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.
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