The EUR/USD ended Friday with losses of 0.10% but the week finished on a higher note up 0.51% as risk appetite deteriorated amid growing speculation the Federal Reserve would pause its easing cycle next month. Nevertheless, the pair closed above the 1.1600 figure, paving the way for further upside.
Euro ends slightly lower Friday but posts weekly gains, supported by mixed Fed signals and steady Eurozone growth
Since Wednesday, the majority of Federal Reserve officials remained hawkish. Regional Fed bank presidents, led by Beth Hammack, Raphael Bostic, Alberto Musalem, Susan Collins, Neel Kashkari and Jeffrey Schmid favored a modestly restrictive monetary policy,
On the dovish front lie Fed Governor Stephen Miran, San Francisco Fed’s Mary Daly, or even Governors Christopher Waller and Michelle Bowman, who said the labor market is deteriorating.
In the neutral stance lie the Fed Chair Jerome Powell and New York Fed John Williams. However, the Fed Chair Powell revealed that December’s cut was not a a foregone conclusion, keeping his options open amid the lack of economic data.
Money market had priced in a 56% chance for a 25-basis points rate cut, down from around 70% a year ago, revealed Prime Market Interest Rate Probability tool.
In Europe, data revealed that the economy grew 0.2% on a quarterly basis, in Q3. The Gross Domestic Product (GDP) year-over-year (YoY) was upwardly revised from 1.3% to 1.4%.
Daily market movers: Euro’s gave back gains on Fed’s hawkish comments
- The US Dollar Index (DXY), which tracks the performance of the buck’s value against other six currencies, rose a modest 0.08% at 99.31 as of writing.
- On Friday, Federal Reserve’s Governor Stephen Miran and Kansas City Fed President Jeffrey Schmid, crossed thew wires. The former doubled down on his dovish stance, arguing that recent data “should make the Fed more dovish, not less,” and warning that policymakers risk making mistakes if they rely too heavily on backward-looking indicators.
- Conversely, Schmid reiterated the reasoning behind his dissent against the latest rate cut, saying: “My rationale for dissenting against the rate cut at the last meeting continues to guide my thinking heading into December.” He added that he views the current stance of monetary policy as “only modestly restrictive,” which he believes is appropriate.
EUR/USD technical outlook: Holds firm at around 1.1600
EUR/USD maintain a bearish tone with buyers unable to decisively breach the 50-day Simple Moving Average (SMA) at 1.1659. Short-term momentum has improved, with the Relative Strength Index (RSI) ticking higher and signaling strengthening bullish pressure. A decisive break above the 50-day SMA would expose the 1.1700 level.
Conversely if EUR/USD tumbles below 1.1600 would put immediate support at the 20-day SMA near 1.1583, followed by 1.1500. A breach of those levels would expose August 1 cycle low of 1.1391 as the next bearish target.
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.
