- EUR/USD is trading at a disadvantage due to a weaker euro and a stronger US dollar.
- The euro fell on Tuesday following lower inflation data. The dollar benefited from strong employment data.
- The escalation of conflicts in the Middle East has further increased the flow of funds into the safe haven US dollar.
EUR/USD was little changed at the 1.1070 level on Wednesday, down from 1.1135 on Tuesday and down 0.60% on the day.
Lower-than-expected eurozone inflation data contributed to the sharp decline. The Harmonized Index of Consumer Prices (HICP) rose 1.8% year-on-year in September, down from 2.2% and 1.9% below expectations. Meanwhile, core inflation was 2.7% year-on-year, one-tenth lower than August's 2.8% and also lower than expected.
The data shows that headline inflation is nearing its core below the European Central Bank's (ECB) target of 2.0%. This increases the possibility that the ECB will cut interest rates further, which is likely to lead to capital outflows and a weaker euro.
The just-released euro zone unemployment rate has dented the currency pair after showing that August's unemployment rate was stable at 6.4%, unchanged from July's figure and in line with economists' expectations. It has had almost no impact.
EUR/USD: decline exacerbated by stronger USD
EUR/USD also fell following the recovery in the US dollar (USD) on Tuesday.
The US dollar strengthened after the release of data showing a stronger-than-expected increase in US job openings, as measured by JOLTS job openings, from 7.71 million in July to 8.04 million in August. This exceeded the expected number of 7.66 million people.
The data is important as the Federal Reserve has recently focused on concerns about the labor market. This largely offset weaker US manufacturing activity data as measured by the ISM Manufacturing PMI, which remained flat in contraction territory and was weaker than expected in September.
EUR/USD also sold off as geopolitical tensions in the Middle East increased inflows into the safe-haven dollar. On Tuesday night, Iran fired about 200 missiles, including ballistic missiles, at the Israeli capital Tel Aviv in retaliation for Israel's killing of Hassan Nasrallah, the leader of the Iranian-backed militia Hezbollah.
More employment-related data will be released in the future.
The main announcements likely to impact EUR/USD on Wednesday are the US ADP employment change data for September and the Federal Reserve, including Fed President Michelle Bowman and Richmond Fed President Thomas Barkin. This is a comment from an official.
Technical analysis: EUR/USD could start falling within multi-year range
EUR/USD remains within a broad multi-year range with an upper bound around 1.1200 and a lower bound around 1.0500. The pair is currently testing the top of the range, but appears to be moving lower after multiple touches.
EUR/USD daily chart
EUR/USD is probably in a sideways trend on all major time frames (short, medium and long term) and since “trend is your friend” is a principle of technical analysis, the odds are against this sideways trend. is likely to continue. , in this case this means a move back down towards the low of the range.
Prices now appear to be starting to fall. It has reached an important support level at the red 50-day simple moving average (SMA) at 1.1041, which is likely to slow the decline, at least temporarily.
To confirm the start of a proper down leg, price needs to break out of the 50-day SMA, the trend line of the last up leg, and the September 11 swing low at 1.1002. Therefore, a close below 1.1000 would be strong bearish confirmation. Downside targets for such a move would be the 200-day SMA of 1.0875, then 1.0777 (August 1st low), and then 1.0600.
Momentum, as measured by the Moving Average Convergence Divergence (MACD), has been relatively bearish over the past few days, with the blue MACD line moving below the red signal line, potentially leaving the pair vulnerable to further weakness. Further evidence suggests that there is.
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 Christine Lagarde, president of the ECB.
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. As well as attracting more foreign investment, that could 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.
