Euro holds gains above 1.1650 on hawkish ECB bias
- EUR/USD posts modest gains near 1.1655 in Thursday’s early Asian session.
- Money markets are bracing for an increasingly hawkish ECB.
- Fed Chairman Kevin Warsh’s speech at the Jackson Hole symposium will take center stage on Friday.
The EUR/USD pair edges higher to around 1.1655 during the early Asian session on Thursday. A hawkish stance of the European Central Bank (ECB) provides some support to the Euro (EUR) against the US Dollar (USD). Traders will closely monitor the Jackson Hole Symposium event later on Friday for fresh impetus.
The ECB is anticipated to raise the key interest rates in September, after tightening in June to contain price pressures amid ongoing geopolitical tensions. Markets are now pricing in nearly a 25% odds of the ECB deposit rate reaching 3.0% by March 2027 and about a 60% chance by September, according to Reuters.
ECB Executive Board member Isabel Schnabel said on Wednesday that borrowing costs will need to rise further as the lengthy conflict in the Middle East and surprisingly strong euro-zone economy pose upside risks to inflation.
Across the pond, the Fed’s preferred inflation gauge came in line with expectations, with the core Personal Consumption Expenditures (PCE) Price Index inflation held steady at 3.3% YoY in July, the US Bureau of Economic Analysis (BEA) showed on Wednesday.
Additionally, the headline PCE Price Index remained unchanged at 3.7% YoY in July, above the consensus of 3.6%. On a monthly basis, the PCE Price Index and the core PCE Price Index both rose by 0.2% in July.
Traders will take more cues from the speeches of Fed officials this week at Jackson Hole, Wyoming, for their annual symposium. Fed Chairman Kevin Warsh’s speech will be in the spotlight.
Euro rate path stays firmly hawkish as markets eye further ECB tightening
Strategists at Scotiabank highlight that ECB policy expectations remain firmly skewed toward further tightening, with markets still “pricing 24bpts of tightening for the September 10th meeting and a cumulative 40bpts by year end.” They note that this persistent hawkish stance continues to underpin Euro sentiment, even as the currency’s recent rally shows signs of consolidation.
Technical Analysis: EUR/USD maintains a constructive outlook above the 100-day SMA
In the daily chart, EUR/USD extends its recovery above both the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-period SMA, which now underpin a constructive bullish bias. Price is pressing the upper half of the Bollinger envelope, with the upper band acting as nearby overhead supply, while the Relative Strength Index (14) at 65.8 leans toward overbought territory, hinting that upside momentum is firm but increasingly stretched.
On the downside, initial support is clustered around the 20-period SMA at 1.1585, reinforced by the 100-day SMA at 1.1575 just below, before the lower Bollinger band at 1.1462 emerges as a deeper demand zone if a broader correction unfolds. On the topside, immediate resistance is located at the Bollinger upper band near 1.1715, and a sustained break above this barrier would open the way for a continuation of the current bullish phase, while failure to clear it could trigger consolidation back toward the moving-average supports.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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