EUR/USD catches a bid but remains stuck below 1.12

VaselineAugust 27, 2024

0 4 minutes read

EUR/USD catches a bid but remains stuck below 1.12

EUR/USD rallied on Tuesday, but bulls remain unable to break 1.1200.
Wednesday’s market session promises some momentum with a thin calendar.
EU and US inflation data are big on Friday, but little meaningful until then.

EUR/USD touched the upper side on Tuesday, supported by continued broad-based market easing of greenback bidding pressure. Fiber returned to higher levels after the trading week started with a slight reduction in recent gains, but a new round of risk-on sentiment in the market sent offers back to recent highs. However, the pair remains trapped below the 1.1200 handle as Euro bulls struggle to confidently force Fiber higher.

Fed Chairman Jerome Powell all but confirmed the central bank will pivot to a rate-cutting cycle on September 18 during an appearance at the Jackson Hole Economic Symposium last Friday, sending market appetite through the roof again.

Next Wednesday: Markets brace for a quiet day

Little of note populates the economic calendar on the Euro side, and Wednesday is shaping up to be a quiet session on both sides of the Atlantic. Fedspeak traders will be on the lookout for a speech by Fed Board of Governors member Christopher Waller at the start of the US market session, while central bank watchers will be on the lookout for any headlines from the EU Eurogroup meeting scheduled for the European market session.

What happened on Tuesday

Mixed prints of June’s US home price data gave investors little to go on. The Federal Housing Finance Agency’s MoM home price index contracted -0.1%, compared to May’s print of 0.0%. Markets had expected a 0.2% print. Meanwhile, the S&P/Case-Shiller home price index rose 6.5% from a year ago, less than the revised 6.9% from the previous period, but still more than the 6.0% expected.

Next: EU and US inflation data slips

The pan-EU harmonized index of consumer price inflation for August is due to be released on Friday morning, with eurozone price growth expected to ease to 2.8% from 2.9% previously as inflationary pressures continue to ease. reduce, although not as much. as quickly as European Central Bank (ECB) policymakers would like.

US Q2 Gross Domestic Product (GDP) numbers are scheduled to be printed on Thursday and are expected to hold steady at 2.8% on an annual basis. However, the key data print this week will be Friday’s reading of the US personal consumption expenditure (PCE) price index for July, which is expected to edge higher to 2.7% from 2.6% and maintain at 0.2% monthly. Market participants absolutely giddy with interest rate cut hopes will be looking for inflation data to come in below expectations, while an above-forecast print could send fresh jitters through investors’ risk appetite.

Forex Today: Lack of enthusiasm indicates some consolidation

EUR/USD Price Forecast

EUR/USD is on pace for its best monthly performance since November 2022, up more than 3.1% in August alone. Despite this week’s early technical exhaustion, Fiber has gained ground for four consecutive trading weeks and is trading well above its 200-day exponential moving average (EMA) at 1.0832.

Despite a healthy supply in bull country, Fiber is deeply exposed to a pullback to the downside, and a lack of upside momentum could see prices decline to the 50-day EMA at 1.0925.

EUR/USD daily chart

Frequently asked questions about the euro

Euro is the currency for the 20 countries of the European Union that belong to the Eurozone. It is the second most heavily traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, representing an estimated discount of 30% on all trades, 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 euro area. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of national banks in the euro area and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric element for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will typically benefit the euro as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMI, 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, it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the 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 particularly significant as they account for 75% of the euro area economy.

Another important piece of information 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 in a given period. If a country produces highly sought-after exports, then its currency will only gain in value from the additional demand created by foreign buyers wanting to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineAugust 27, 2024

0 4 minutes read