EUR/USD extends rally above 1.1600 as ceasefire sinks US Dollar
- EUR/USD gains 0.39%, trading near yearly high after the ceasefire weakens safe-haven Dollar demand.
- Powell says policy is modestly restrictive but open to cuts if inflation remains contained.
- IFO Business Climate improves for sixth month; ECB officials hint at steady path unless inflation flares.
EUR/USD extended its gains for the fourth straight day, up by 0.39%, even though it trades off the yearly highs of 1.1641, driven by US Dollar weakness spurred by a de-escalation of the Middle East conflict. Israel and Iran agreed to a ceasefire, which improved the market mood and ultimately weighed on the Greenback. At the time of writing, the pair traded at 1.1619, up 0.38%.
Market mood turned upbeat, pushing the Dollar down. The US Dollar Index (DXY), which tracks the buck’s performance against a basket of six currencies, including the Euro, tumbled over 0.47%, trading near weekly lows of 97.70.
Recently, the New York Times revealed that US intelligence suggests that strikes on Iran did not destroy nuclear sites, which CNN previously reported. Despite this, Wall Street is poised to end Tuesday’s session in the green with traders brushing aside hawkish comments by the Federal Reserve Chair Jerome Powell.
In his testimony before the US House of Representatives, Powell stated that rates are modestly restrictive. He added that if inflation pressures are contained, the Federal Open Market Committee (FOMC) may consider cutting rates.
During the European session, the Eurozone economic docket revealed that the IFO Business Climate rose for the sixth consecutive month, despite overall geopolitical uncertainty. Aside from this, some European Central Bank (ECB) speakers crossed the wires.
ECB Francois Villeroy said that the central bank could still cut rates if inflation expectations remain moderate, according to the FT. ECB Kazimir shifted his stance, turning neutral, favoring keeping rates unchanged. He said that he thinks “that we are at target when it comes to neutral rate.”
Daily digest market movers: EUR/USD soars despite Fed’s hawkish tilt
- EUR/USD increased despite Fed Chair Jerome Powell's hawkish remarks, stating that the Fed is in no hurry to cut interest rates. Fed Governor Michael Barr said that monetary policy is well-positioned for the Fed to wait and see the economic evolution.
- New York Fed President John Williams echoed Powell’s comments, mentioning that tariffs could drive inflation higher and that economic growth will slow down. He also noted that tariffs are likely to impact growth and inflation in the months to come.
- Minneapolis Fed Neel Kashkari said that the Fed is in a wait-and-see mode regarding monetary policy. He says the Committee is evaluating the impact of tariffs on inflation. Echoing some of his comments was Boston Fed Susan Collins, who said that the current state of monetary policy is necessary.
- The US docket revealed the latest US Consumer Confidence data by the Conference Board, with June’s print falling to 93.0, down from 98.0 in May and well below the expected reading of 100. According to Stephanie Guichard, Senior Economist for Global Indicators at the Conference Board, “The decline was broad-based across components, with consumers' views on both current conditions and future expectations contributing to the downturn.”
- Germany’s IFO Business Climate Index rose to 88.4 in June, up from 87.5 in May and slightly above the forecast of 88.3. Business expectations also showed improvement, climbing to 90.7 from 88.9, beating projections of 90.0. Despite the upbeat data, the Euro saw little reaction.
- Financial market players do not expect that the ECB will reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.
Euro technical outlook: EUR/USD remains bullish with buyers targeting 1.1700 as next resistance
The EUR/USD remains bullish, and after hitting a new year-to-date (YTD) high of 1.1641, further upside is expected in the near term. Price action confirms the trend, while the Relative Strength Index (RSI) suggests that consolidation lies ahead.
The EUR/USD needs a daily close above 1.1650. A breach of the latter will expose the 1.1700, followed by the 1.1700 and 1.1800 figures, as the next key resistance levels. On the flipside, a daily close below 1.1600 could pave the way for testing 1.1550, followed by the 1.1500 mark. Once surpassed, the next support would be the weekly open at 1.1454.
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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