Key Takeaways
- EUR/USD is trading around 1.1600 amid a subdued economic calendar and geopolitical uncertainty.
- Geopolitical tensions, including US-China trade friction and the Russia-Ukraine conflict, are impacting market sentiment.
- Key upcoming economic indicators include US CPI and PMI data, alongside European Flash PMIs.
- Technical analysis suggests a neutral to bearish outlook for EUR/USD, with potential for further declines.
- Factors influencing the Euro’s strength include ECB policy, Eurozone economic performance, and trade balance figures.
EUR/USD is currently holding its ground near the 1.1600 mark on Wednesday. Market participants are largely focused on the delayed US Consumer Price Index (CPI) report, now scheduled for release on Friday, as the economic calendars for both the Eurozone and the United States offer limited immediate data.
Euro’s Price Action Moderated by Data Scarcity and Trade Uncertainties
At the time of reporting, the EUR/USD pair has seen minimal gains of 0.05%. Concurrently, the US Dollar Index (DXY), which measures the greenback’s strength against a basket of major currencies, has slightly decreased by 0.04% to trade at 98.92.
Geopolitical developments are currently a dominant narrative in financial markets. Persistent high tensions between the US and China, coupled with the ongoing conflict in Russia and Ukraine, are exerting pressure on the Euro. The recent cancellation of a meeting between Presidents [Person Name] Putin and [Person Name] Trump in Budapest has further limited any significant upward movement for the Euro.
Adding to the prevailing cautious sentiment, Reuters has reported that the US is considering implementing restrictions on exports to China that rely on US software. This potential development suggests that increased risk aversion could lead to a downward trend for EUR/USD.
💡 The US government has been experiencing a shutdown for 22 days, with no clear indication of an imminent resolution. However, Democratic House Leader Hakeem Jeffries has expressed optimism that the shutdown could be resolved by the end of October.
In Europe, [Person Name] Martins Kazaks, a member of the European Central Bank (ECB) Governing Council, indicated that the next interest rate adjustment could be either a hike or a cut, according to information from Econostream Media.
Looking ahead this week, the US economic calendar includes the release of S&P Global Purchasing Managers’ Indexes (PMIs) and the September CPI report on Friday. In Europe, Flash PMIs for key economies are anticipated to provide valuable insights into the global monetary policy outlook.
Daily Market Movers: Geopolitical Factors Capping the Euro
- Reuters reported that the Trump administration is exploring a plan to restrict a broad range of software-powered exports to China. This action is reportedly being considered as a retaliatory measure against Beijing’s recent rare earth export restrictions, according to a US official and three individuals briefed on the matter by US authorities.
- Market participants are closely monitoring the upcoming release of US CPI data in advance of next week’s Federal Reserve monetary policy decision. The US central bank is widely expected to enact a 25 basis point rate cut, bringing the target range to 3.75%-4%. Traders are already factoring in an additional 0.25% reduction for the December meeting into their expectations.
- The ECB is anticipated to maintain its current interest rates next week, with market odds standing at 98% in favor of this outcome.
Technical Outlook: EUR/USD Exhibits Neutral to Bearish Bias, Further Downside Possible
The technical outlook for EUR/USD shows a slight improvement but maintains a neutral to bearish bias. The pair is currently trading below the convergence of the 100-day Simple Moving Average (SMA) and the 20-day SMA, both of which are located around the 1.1656 level. The Relative Strength Index (RSI) has fallen below the neutral 50 level, suggesting a potential increase in bearish momentum.
Immediate support levels for EUR/USD are identified at 1.1600, followed by 1.1550 and 1.1500. A decisive break below these levels could expose the cycle low recorded on August 1, which is situated near 1.1391. On the upside, resistance can be observed at the confluence of the 100-day SMA and the 20-day SMA. Further resistance is noted at 1.1700, and a sustained move above this level could clear the path toward 1.1800 and the July 1 high of 1.1830.
Euro FAQs
The Euro serves as the official currency for the 19 European Union countries that constitute the Eurozone. It is the second most traded currency globally, surpassed only by the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover exceeding $2.2 trillion.
The EUR/USD currency pair is the most actively traded in the world, representing an estimated 30% of all transactions. Other significant pairs include EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB), headquartered in Frankfurt, Germany, functions as the reserve bank for the Eurozone and is responsible for setting interest rates and managing monetary policy.
The ECB’s primary objective is to maintain price stability, which involves controlling inflation and fostering economic growth. Its principal tool for achieving this is the adjustment of interest rates. Generally, higher interest rates, or the anticipation thereof, tend to benefit the Euro, while lower rates typically have the opposite effect.
Monetary policy decisions are made by the ECB Governing Council during meetings held eight times annually. These decisions are determined by the heads of the Eurozone’s national central banks and six permanent members, including the ECB President, Christine Lagarde.
Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is a crucial economic indicator for the Euro. If inflation rises above the ECB’s target of 2%, it necessitates the ECB to increase interest rates to bring it under control.
Relatively high interest rates compared to other currencies typically favor the Euro, as this enhances the region’s attractiveness for global investors seeking returns on their capital.
Various economic data releases provide insights into the health of the economy and can influence the Euro. Key indicators include GDP figures, Manufacturing and Services PMIs, employment statistics, and consumer sentiment surveys.
A robust economy generally supports the Euro, attracting foreign investment and potentially prompting the ECB to raise interest rates, thereby strengthening the currency. Conversely, weak economic data tends to weaken the Euro.
Economic data from the four largest Eurozone economies – Germany, France, Italy, and Spain – are particularly significant, as they collectively represent 75% of the Eurozone’s economic output.
The Trade Balance is another important data release that impacts the Euro. This indicator measures the difference between a country’s export earnings and its import expenditures over a specified period.
A country with highly sought-after exports can experience currency appreciation due to increased demand from foreign buyers. Therefore, a positive net Trade Balance generally strengthens a currency, while a negative balance tends to weaken it.