Euro appears offered around 1.0550 ahead of key EMU, US data

The Euro trades slightly on the defensive vs. the US Dollar.
Stocks in Europe open Tuesday’s session with decent gains.
EUR/USD’s upside falters around weekly highs near 10560.
The USD Index (DXY) remains propped up by the 106.20 zone.
Germany, EMU ZEW survey takes centre stage in the old continent.
US Retail Sales, Industrial Production, Fedspeak will be in the limelight.

The Euro (EUR) commences the European session with modest losses against the US Dollar (USD), prompting EUR/USD to gyrate around the 1.0550 region on Tuesday.

Simultaneously, the Greenback experiences a slight advance to the 106.30–106.40 band when tracked by the USD Index (DXY), setting aside Monday’s negative performance against the backdrop of the continuation of the selling pressure in the US fixed-income market.

Continuing to centre attention on monetary policy, investors currently anticipate that the Federal Reserve (Fed) will uphold its position of not implementing any interest rate adjustments throughout the remainder of the year. Meanwhile, participants in the financial markets contemplate the possibility of the European Central Bank (ECB) halting policy modifications, despite inflation levels surpassing the bank's target and mounting concerns about the potential for an economic downturn or stagflation in the European region.

On the euro docket, the Economic Sentiment in both Germany and the broader euro area tracked by the ZEW Institute is due later.

In the US, Retail Sales take centre stage along with Industrial Production, the NAHB Housing Market Index, Business Inventories and speeches by FOMC Governor Michelle Bowman (permanent voter, hawk), NY Fed John Williams (permanent voter, centrist), and Richmond Fed Thomas Barkin (2024 voter, centrist).

Daily digest market movers: Euro comes under pressure on Dollar’s bounce

The EUR faces some selling pressure vs. the USD.
US and German yields keep the uptrend well in place so far.
Investors see the Fed leaving interest rates steady in the next few months.
Investors anticipate that the ECB will extend the pause in its rate-hiking cycle.
Middle Eastern geopolitical tensions remain high.
The RBA Minutes fell on the hawkish side.

Technical Analysis: Euro meets initial hurdle around 1.0560

EUR/USD now comes under some mild downside pressure and returns to the 1.0550 region on Tuesday.

Should the current upward trend persist, EUR/USD may revisit the October high at 1.0639 (October 12) ahead of the weekly top of 1.0736 (September 20) and the noteworthy 200-day SMA at 1.0821. A break above this point could lead to an attempt to surpass the weekly peak of 1.0945 (August 30) and approach the psychological milestone of 1.1000. Any further advances beyond the August high of 1.1064 ( August 10) might potentially propel the pair towards the weekly pinnacle at 1.1149 (July 27) and even reach the 2023 top of 1.1275 (July 18).

Conversely, in the event that selling pressure resumes, there is a chance of revisiting the 2023 low at 1.0448 (October 3) and possibly testing the significant support of 1.0400. If this threshold is breached, it could open the path to a retest of the weekly lows at 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).

It is crucial to bear in mind that as long as EUR/USD remains below the 200-day SMA, the potential for sustained downward pressure persists.

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.