EUR/USD ticks higher ahead of crucial inflation reports from Eurozone and US
- EUR/USD attracts some follow-through buying on Thursday amid modest USD weakness.
- Reduced bets for an aggressive ECB policy easing underpin the Euro and also lend support.
- Traders now look to key inflation figures from the Eurozone and the US for a fresh impetus.
The EUR/USD pair is seen building on the previous day's goodish rebound from sub-1.0800 levels, or a one-week low and gaining some positive traction during the early European session on Thursday. Traders, however, might opt to wait on the sidelines ahead of a slew of inflation reports from Germany, France, Spain and the United States (US), which will be followed by the flash Eurozone CPI print on Friday. In the meantime, reduced bets for rapid interest rate cuts by the European Central Bank (ECB) continue to act as a tailwind for the Euro.
Apart from this, a modest US Dollar (USD) downtick is seen as another factor lending some support to the EUR/USD pair. Any meaningful downfall for the Buck, however, seems limited in the wake of speculations that sticky inflation and a still-resilient US economy should allow the Federal Reserve (Fed) to keep interest rates higher for longer. Apart from this, a softer risk tone could benefit the Greenback's relative safe-haven status and might contribute to capping gains for the currency pair. This warrants some caution before placing fresh directional bets.
Daily digest market movers: Draws support from weaker USD, delayed ECB rate cut bets
- Investors seem reluctant ahead of the crucial inflation data from the Eurozone and the United States, leading to the EUR/USD pair's subdued range-bound price action on Thursday.
- Retail Sales in Germany fell by 0.4% MoM in January, missing expectations for a 0.5% increase, and adding to concerns about the darkening outlook for the Eurozone's biggest economy.
- ECB Governing Council member Peter Kazimir said on Wednesday that he would prefer the central bank to start cutting rates in June, followed by a smooth and steady cycle of policy easing.
- ECB Vice President Luis de Guindos said that the recent inflation data has been very positive, though the central bank needs to be sure that prices will move towards the 2% target before cutting rates.
- Money markets are now pricing in around 90 basis points (bps) of rate cuts by the ECB this year, down from almost 150 bps a month ago, which is seen as acting as a tailwind for the Euro.
- The second estimate of the US GDP print showed on Wednesday that the world's largest economy grew by a 3.2% annualized pace during the fourth quarter vs the advance reading of a 3.3% rise.
- The data suggested that the US economy remains in good shape, which, along with comments by several Federal Reserve officials, reaffirmed the higher-for-longer interest rates narrative.
- New York Fed President John Williams said that the central bank will begin cutting rates this year depending on how the data comes in, albeit there is still a way to go before hitting the 2% inflation target.
- Atlanta Fed President Raphael Bostic stressed that the US central bank has not declared victory over inflation yet and said that he is comfortable advising patience when it comes to loosening policy.
- Furthermore, Boston Fed Bank President Susan Collins noted that it will become appropriate to begin easing policy later this year but the path to returning inflation to its 2% target will likely be bumpy.
- The US Dollar, however, struggles to attract buyers as traders look to the US Personal Consumption Expenditures (PCE) Price Index for cues about the Fed's rate-cut path and some meaningful impetus.
- Thursday's economic docket also features the flash CPI estimates from Germany, France and Spain, followed by US macro data – Weekly Initial Jobless Claims, the Chicago PMI and Pending Home Sales.
- The focus will then shift to the Eurozone consumer inflation figures on Friday, which might influence expectations about the ECB's future policy decision and infuse volatility around the currency pair.
Technical analysis: EUR/USD bulls could aim back to conquer the 1.0900 round-figure mark
From a technical perspective, oscillators on the daily chart have just started gaining positive traction and support prospects for further gains. Some follow-through buying beyond the 1.0850 area will reaffirm the constructive outlook and lift the EUR/USD pair to the 1.0900 round figure. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move, towards reclaiming the 1.1000 psychological mark for the first time since January 11.
On the flip side, any meaningful downfall might continue to find some support near the 1.0800 mark. That said, acceptance below the said handle could make the EUR/USD pair vulnerable to accelerate the fall back towards retesting sub-1.0700 levels, or a three-month low touched on February 14. The latter should act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.24% | 0.03% | 0.54% | 0.89% | -0.48% | 1.53% | -0.34% | |
| EUR | 0.23% | 0.26% | 0.77% | 1.11% | -0.24% | 1.76% | -0.11% | |
| GBP | -0.02% | -0.28% | 0.51% | 0.87% | -0.51% | 1.51% | -0.36% | |
| CAD | -0.54% | -0.79% | -0.50% | 0.38% | -1.02% | 1.00% | -0.89% | |
| AUD | -0.91% | -1.14% | -0.87% | -0.35% | -1.38% | 0.65% | -1.24% | |
| JPY | 0.47% | 0.23% | 0.54% | 1.01% | 1.36% | 2.00% | 0.13% | |
| NZD | -1.56% | -1.80% | -1.52% | -1.01% | -0.65% | -2.03% | -1.90% | |
| CHF | 0.34% | 0.10% | 0.38% | 0.88% | 1.24% | -0.13% | 1.87% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Euro FAQs
What is the Euro?
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%).
What is the ECB and how does it impact the Euro?
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.
How does inflation data impact the value of the Euro?
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.
How does economic data influence the value of the Euro?
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.
How does the Trade Balance impact the Euro?
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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