EUR/USD hovers above 1.0800 with focus on Eurozone data and Fed policy
- EUR/USD trades sideways above 1.0800 ahead of crucial Eurozone/US macroeconomic events.
- The ECB may cut interest rates two more times this year.
- The Fed is expected to openly endorse rate cuts in September.
EUR/USD exhibits a sideways performance in Tuesday’s European session while the US Dollar (USD) edges higher amid uncertainty among market participants ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, moves higher to near 104.70.
The Fed is expected to leave interest rates unchanged in the range of 5.25%-5.50% for the eighth consecutive meeting. It is anticipated to be the last steady interest rate decision, and the Fed will pivot to policy normalization starting from the September meeting.
According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the central bank will reduce interest rates by 25 basis points (bps) from their current levels in the September meeting. The data also shows that there will be two more rate cuts before year end instead of one as projected by Fed’s policymakers in the latest Fed dot plot.
Market experts see the Fed acknowledging the return of inflation on the path towards the bank’s target of 2% and some progress, too, along with upside risks to labor market strength. This would indicate the Fed’s readiness to unwind the more than two-year-long policy-tightening framework.
This week, investors will also focus on a slew of economic data. In Tuesday’s session, investors will focus on JOLTS Job Openings data for June, which will be published at 14:00 GMT. The number of job vacancies posted by employers is estimated to have declined to 8.03 million from the former release of 8.14 million.
Daily digest market movers: EUR/USD trades back and forth ahead of German GDP and inflation
- EUR/USD trades in a tight range, slightly above the immediate support of 1.0800 in Tuesday’s European session. The major currency pair struggles for direction as investors have sidelined ahead of the preliminary German and Eurozone Q2 Gross Domestic Product (GDP) and the German Harmonized Index of Consumer Prices (HICP) for July.
- The economic data will indicate whether current market speculation that the European Central Bank (ECB) will cut its key borrowing rates two more times this year are appropriate. Eurozone and German economies are estimated to have grown at a slower pace of 0.2% and 0.1%, respectively. German annual HICP is expected to have decelerated to 2.4% from June’s reading of 2.5%, with monthly figures growing steadily by 0.2%.
- The scenario of slower GDP growth and soft inflation would be unfavorable for the Euro as it will boost expectations of two more rate cuts by the ECB this year. The ECB initiated its policy-easing cycle in June but didn’t cut interest rates sequentially in July as policymakers worry that an aggressive expansionary stance could lift price pressures again.
- This week, the major trigger for the Euro will be the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) for July, which will be published on Wednesday. Annually, headline and core HICP, which excludes volatile items like food, energy, alcohol, and tobacco, are estimated to have decelerated to 2.4% and 2.8%, respectively.
Technical Analysis: EUR/USD consolidates above 1.0800
EUR/USD trades inside Monday’s trading range and holds key support of 1.0800. The shared currency pair remains inside a Symmetrical Triangle pattern on a daily timeframe after failing to hold the breakout. The major currency pair settles below the 20-day Exponential Moving Average (EMA), which trades around 1.0840.
The major could slide further towards round-level supports near 1.0800 and 1.0700. On the upside, the round-level resistance of 1.0900 will be a key barrier for the Euro bulls.
The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded.
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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