Euro gains little as ZEW sentiment falls short of forecast
- EUR/USD ends just under 1.1250, near Friday's level and the top of its range.
- The ECB is expected to hold at 2.50% on October 29, with inflation at 3.7%.
- ECB President Lagarde speaks Wednesday, and euro area PMIs arrive Friday.
Economic sentiment in the ZEW survey fell well short of forecast, and EUR/USD ended Tuesday about where it ended Friday, just under 1.1250. It rose from about 1.1200 to just above 1.1250, the fifth time this month a daily high has topped that level.
The ZEW reading fell to 18.5 in October from 25.8, against a 24.2 forecast. A weaker outlook for euro area growth argues against more European Central Bank (ECB) hikes. Higher ECB rates are what the Euro has going for it against a Fed that's still raising its own.
The ECB is expected to keep its deposit rate at 2.50% on October 29. Danske Bank expects one more hike in December to a 2.75% peak, which would still leave the deposit rate almost a point below September's 3.7% inflation.
On the calendar
ECB President Lagarde speaks at 16:30 GMT on Wednesday, after ECB chief economist Lane, Bundesbank President Nagel and ECB Executive Board member Cipollone earlier in the day. Bank of Italy Governor Panetta follows at 12:15 GMT on Thursday. Hamburg Commercial Bank's Purchasing Managers Index (PMI) figures for October come at 08:00 GMT on Friday, forecast at 52.8 for both factories and services.
Thursday's US jobless claims at 12:30 GMT are forecast at 200K after 199K. S&P Global's US PMIs come at 13:45 GMT on Friday, less than six hours after the euro area's, so both sides of EUR/USD report the same day.
On the charts
EUR/USD has traded between just above 1.1100 and just under 1.1300 since October 2, with the low on October 14. The 50-day Exponential Moving Average (EMA) just under 1.1400 and the 200-day EMA near 1.1500 are both above that range, and EUR/USD has been below both since mid-September.
EUR/USD daily chart
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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