EUR/USD steady around 1.1600 as markets wait for US CPI
- EUR/USD trades flat around 1.1600 while the DXY is slightly lower at 98.92.
- US government shutdown enters day 22 with little sign of resolution.
- ECB’s Kazaks says next rate move could “as easily be a hike as a cut,” highlighting policy uncertainty.
EUR/USD holds firm near the 1.1600 figure on Wednesday amid a scarce economic docket in both sides of the Atlantic as market participants await a delayed US Consumer Price Index (CPI) report, to be released on Friday.
Euro’s muted price action amid scarce data, lingering uncertainty around trade
The pair trades with minimal gains of 0.05% at the time of writing, while the US Dollar Index (DXY), which measures the American currency's performance against other six, dives 0.04% at 98.92.
Geopolitics are dominating the narrative of the financial markets, as US-China trade tensions remain high, while the lack of resolution of the Russia–Ukraine conflict weighs on the shared currency. The cancellation of the Putin-Trump meeting in Budapest caps the advance of the Euro.
Alongside this, Reuters reported that the US is considering "curbs on exports to China made with US software,” suggesting that risk aversion could drive EUR/USD lower.
The US government has remained shut for 22 days, and shows no signs of progress, even though Democratic House Leader Hakeem Jeffries hopes that they can get the shutdown resolved by the end of October.
In Europe, the European Central Bank (ECB) member MartinsKazaks said that it may well be the case that the next rate move could be as easily a hike as a cut, according to Econostream Media.
Ahead this week, the US docket will feature S&P Global Purchasing Managers Indices (PMIs) on Friday, along with the release of September’s CPI. In Europe, Flash PMIs for major economies will offer clues regarding the global monetary policy outlook.
Daily market movers: Euro's capped by geopolitics
- Reuters revealed that “The Trump administration is considering a plan to curb a dizzying array of software-powered exports to China, from laptops to jet engines, to retaliate against Beijing's latest round of rare earth export restrictions, according to a US official and three people briefed by US authorities.”
- Market participants are waiting for the release of the US CPI ahead of next week’s Federal Reserve monetary policy decision. The US central bank is expected to cut rates 25 basis points to the 3.75% - 4% range, with traders already pricing an additional 0.25% reduction for the December meeting.
- Next week, the ECB is expected to hold rates unchanged, with odds standing at 98%.
Technical outlook: EUR/USD neutral to bearish biased, further downside expected
EUR/USD’s technical picture has shown mild improvement but remains neutral to bearish, trading below the confluence of the 100-day Simple Moving Average (SMA) and 20-day SMA at 1.1656. The Relative Strength Index (RSI) has slipped below the neutral 50 line, a signal that bears are gaining traction.
Immediate support is located at 1.1600, followed by 1.1550 and 1.1500. A break beneath these levels would expose the August 1 cycle low near 1.1391. On the upside, resistance is seen at the confluence of the 100-day SMA and the 20-day SMA, followed by 1.1700. A sustained move above the latter clears the way to 1.1800 and the July 1 high at 1.1830.
Euro FAQs
The Euro is the currency for the 19 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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