Euro bounces off six-month lows near 1.0615, looks at US data, Lagarde

The Euro remains offered vs. the US Dollar in the wake of the Fed event.
Stocks in Europe started Thursday session deep in the red.
EUR/USD drops and rebounds from the vicinity of 1.0615.
The USD Index (DXY) climbs further and reaches new highs.
The Fed left the door open to another 25 bps rate hike before year-end.
Usual weekly Initial Jobless Claims, Philly fed Index will take centre stage.
The ECB’s Christine Lagarde speaks later in the session.

Following an early dop to fresh multi-month lows, the Euro (EUR) manages to trim part of those losses vs. the US Dollar (USD), prompting EUR/USD to regain the 1.0650 region in the wake of the opening bell in Europe on Thursday.

The Greenback extends its march north as investors keep digesting the FOMC event and reaches new six-month peaks near 105.70 when measured by the USD Index (DXY), trading just pips away from the YTD tops around 105.90 (March 8).

The so-far pullback in the pair comes in tandem with some corrective moves in the short end of the US yield curve vs. humble gains in the belly and the long end, while the 10-year bund yields regain the area of recent peaks near 2.75%.

It is worth recalling that following the hawkish hold by the Federal Reserve (Fed) at its meeting on Wednesday, Chief Powell emphasized that there is still a significant journey ahead in achieving the target inflation rate of 2%. Additionally, he stated that the FOMC decided to maintain the current interest rates in light of the progress made thus far but remains prepared to raise rates when deemed suitable.

Data-wise, in the euro area, advanced Consumer Confidence tracked by the European Commission is due, along with a speech by the ECB’s President C. Lagarde.

In the US, usual weekly Initial Jobless Claims are due followed by the Philly Fed Manufacturing Index, the CB Leading Index and Existing Home Sales.

Daily digest market movers: Euro drops to new lows near 1.0600

The EUR rebounds from fresh lows vs. the USD.
US and German yields advance marginally so far on Thursday.
The Fed left the door open to another 25 bps rate raise in the next months.
The BoE meets later and is expected to hike rates by 25 bps.
Markets now price in probable rate cuts by the Fed in Q3 2024.
An impasse in the ECB’s hiking cycle appears to be gathering traction.
Intervention fears surround the price action around USD/JPY.

Technical Analysis: Euro opens the door to a drop to 1.0516

EUR/USD kicks off Thursday’s session with marked losses and reaches new lows in the 1.0620./15 band.

If the EUR/USD breaches its September low of 1.0616 (September 14), there is a chance it could revisit the March low of 1.0516 (March 15) before reaching the bottom of 1.0481 (January 6) in 2023.

On the positive side, there is a minor resistance level at the weekly high of 1.0767 (September 12), followed by the more significant 200-day SMA at 1.0828. If the pair manages to break above this level, it could pave the way for a continued recovery towards the temporary 55-day SMA at 1.0911, with the possibility of reaching the weekly top of 1.0945 (August 30). Surpassing the latter could bring the psychological level of 1.1000 into focus, followed by the August peak of 1.1064 (August 10). Beyond that, the pair might retest the weekly high at 1.1149 (July 27) and potentially reach the 2023 top at 1.1275 (July 18).

However, it's important to note that as long as the EUR/USD remains below the 200-day SMA, there is a chance that the pair will continue to face downward pressure.

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.