- EUR/USD has been modestly rising above 1.0800 this week as investors await a series of macroeconomic indicators from the US and Eurozone.
- US JOLTS job openings are estimated to have decreased slightly in September.
- Traders are questioning the scale of the ECB's expected rate cut in December.
EUR/USD rose slightly in Tuesday's European session around the round level figure of 1.0800. Major currency pairs are firming up as the US dollar (USD) continues to rally ahead of this week's series of US macroeconomic indicators and heightened uncertainty surrounding the US presidential election to be held on November 5th. There is.
September US Personal Consumption Expenditure Price Index (PCE) data, preliminary third quarter gross domestic product (GDP), non-farm payrolls, and October ISM Manufacturing Purchasing Managers Index (PMI) data released It is scheduled. This data is key to influencing market expectations about the Federal Reserve's interest rate path for the rest of the year.
Economists say the U.S. economy created half of the jobs it added in September, the manufacturing PMI remains below the 50.0 threshold, inflation has fallen slightly and GDP expanded at a steady 3% annual rate. I'm predicting it.
Slower job growth is likely to support market expectations for a Fed rate cut in December. The market is pricing in a 25 basis point (bp) cut in borrowing rates in November and December, according to the CME FedWatch tool.
In Tuesday's session, investors will focus on September US JOLTS jobs data, which will be released at 2:00 GMT. The number of job openings is estimated to have decreased slightly from 8.04 million in August to 7.99 million.
Daily Digest Market Trends: EUR/USD holds steady as investors wait for US JOLTS jobs
- EUR/USD has remained within a limited range around 1.0800 for the past six business days. The euro (EUR) is struggling to find direction as investors look for new clues about the size of rate cuts expected by the European Central Bank (ECB) at its final monetary policy meeting of the year in December. .
- The ECB is widely expected to cut deposit scheme rates again, but traders are wondering whether the central bank will continue its rate-cutting cycle at its usual 25 basis points (bp) pace or cut rates even more sharply. are. Market expectations for a major interest rate cut from the ECB rose after several officials stressed the risk that inflation would continue to fall below the desired 2%.
- The possibility that Germany's economy could end the year in recession is the main reason for doubts about low inflation. For further clues about economic growth in Germany and the eurozone, investors will pay close attention to preliminary third-quarter GDP figures for both economies released on Wednesday.
- Economists estimate that Germany's GDP contracted by 0.3% year-on-year in the third quarter, after being flat in the second quarter. Over the same period, euro area GDP is estimated to have expanded by 0.8%, faster than the previous 0.6%.
- Investors will also be looking at preliminary Harmonized Consumer Price Index (HICP) figures for Germany and Spain for October on the same day. Germany's annual HICP is expected to grow at a faster rate of 2.1%, while Spain's inflation rate is estimated to remain below 2%.
Technical analysis: EUR/USD remains below the 200-day EMA
EUR/USD remains above the upward trend line around 1.0750, which was plotted from the low of around 1.0450 on the October 3, 2023 daily time frame. However, the broader outlook for the major currency pair remains bearish as it remains below the 200-day exponential moving average (EMA) trading around 1.0900.
The downside move in the common currency pair began after the double top formation broke on the daily time frame around the September 11 low of 1.1000, resulting in a bearish reversal.
Although the 14-day Relative Strength Index (RSI) is rising, it remains within the 20.00-40.00 range, suggesting further downside room.
On the downside, if the major currency pairs break below 1.0750, further weakness is likely towards round-level support at 1.0700. Meanwhile, the 200-day EMA near 1.0900 and the psychological reading at 1.1000 have emerged as important resistance levels.
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world, accounting for an estimated 30% of all trades, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%). ) and so on.
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB's main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means is to raise or lower interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro, and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB's 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, as it makes the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an 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 would that attract more foreign investment, but it could also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area's four largest economies (Germany, France, Italy and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
