EUR/USD falls slightly from 1.0800 ahead of crucial US and Eurozone economic data
- EUR/USD drops from 1.0800 as investors turn cautious ahead of key US inflation readings and Eurozone Q1 GDP data.
- Eurozone price index is on track to return to 2% as service inflation eases to 3.7%.
- The US inflation data will influence Fed rate-cut prospects for September.
EUR/USD falls slightly below the round-level resistance of 1.0800 in Tuesday’s European session. The major currency pair drops as investors await the release of the United States Consumer Price Index (CPI) for April and the Eurozone’s preliminary Q1 Gross Domestic Product (GDP) data, which will be published on Wednesday.
US consumer inflation data will significantly influence speculation for the Federal Reserve (Fed) rate cuts, which it is expected to begin from the September meeting. US CPI remained hotter than expected in the first quarter of the year due to tight labor market conditions and robust household spending. Therefore, investors will keenly focus on it as the continuation of the release of hot readings will force traders to pare bets for Fed rate cuts in September. Hot inflation reading will also offset the Fed rate-cut optimism built on easing labor market conditions.
Daily digest market movers: EUR/USD drops slightly ahead of key data
- EUR/USD is down slightly below the crucial resistance of 1.0800. The major currency pair moves inside Monday’s trading range as the US Dollar remains steady ahead of the release of producer and consumer inflation readings for April. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades steadily above the crucial support of 105.00.
- The US consumer inflation data will be the major event of the week, which is expected to soften. But before that, investors will focus on the Producer Price Index (PPI) data, which will be published at 12:30 GMT on Tuesday. Investors expect that the producer inflation will remain stubborn. Annual headline PPI is estimated to accelerate by 2.2% from the prior reading of 2.1%, with core readings growing steadily by 2.4%.
- On the other side of the Atlantic, investors await the preliminary Eurozone Q1 GDP, which is expected to have expanded at a steady rate. Quarterly and annualized GDP are projected to have grown stably by 0.3% and 0.4%, respectively. Upbeat GDP growth would provide relief to European Central Bank (ECB) policymakers, which are planning to start lowering borrowing rates from the June meeting.
- Price pressures in the Eurozone economy are on course to return to the desired rate of 2% as the service inflation, which remained consistent at 4% in the November-March period, declined sharply to 3.7% in April. Financial markets have anticipated that the ECB will reduce interest rates by 70 basis points (bps) this year.
Technical Analysis: EUR/USD faces pressure near 1.0800
EUR/USD faces selling pressure near the round-level resistance of 1.0800. The 200-day Exponential Moving Average (EMA) near 1.0800 is acting as a strong barrier for Euro bulls.
Even though, the major currency pair is on course towards the downward-sloping border of the Symmetrical Triangle pattern formed on a daily timeframe, which is plotted from the December 28 high around 1.1140. The upward-sloping border of the triangle pattern is marked from the October 3 low at 1.0448. The Symmetrical Triangle formation exhibits a sharp volatility contraction.
The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.
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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