EUR/USD found the high end on Thursday, holding fast to the 1.1150 level, though most of the pair’s bullish momentum comes from a broad-market selloff in the Greenback rather than any particular bullish fix in the Euro.
The economic data docket has been particularly light on the European side of things this week. All that remains of moderate note to EUR traders is a scheduled appearance from European Central Bank (ECB) President Christine Lagarde on Friday. Still, even that will be happening during US market hours. ECB President Lagarde will be speaking at the Michel Camdessus Central Banking Lecture in Washington DC.
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On the US side of things, Initial Jobless Claims eased back to 219K for the week ended September 13, down from the previous week’s revised 231K and under the median market forecast of 230K. The Philadelphia Fed Manufacturing Survey for September also printed well above expectations, with the spread index of manufacturing conditions improving to 1.7 from the previous seven-month low of -7.0 and handily beating the expected print of -1.0.
Fed Chair Jerome Powell convinced markets that the Fed’s outsized jumbo cut of 50 bps this week wasn’t a snap response to deteriorating economic conditions but rather an attempt to get ahead of the curve and bolster the US labor market. Powell successfully floated a rebranding of an entire half-percentage-point cut as a “recalibration,” and investors rewarded the Fed’s latest narrative pivot by pulling out of the Greenback across the board and plowing cash into higher-yielding assets.
Despite this week’s Fed-fueled rally, EUR/USD continues to churn just north of the 1.1100 handle. The post-Fed rally has kept Fiber even-keeled in the midweek, but meaningful momentum has yet to materialize and the pair could be poised for an exhaustion play. However, EUR/USD is still cycling chart paper on the high end of recent momentum, and short pressure will have a difficult time staging a full pullback to the 50-day Exponential Moving Average (EMA) near 1.1000.
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.