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EUR/USD Monday bidding blinks as ECB rate call looms over the horizon

July 16, 2024
in Business
EUR/USD Monday bidding blinks as ECB rate call looms over the horizon
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EUR/USD bidders failed to make a clean break of 1.0900 on Monday.
Fiber’s near-term bull run set to end as technicals weigh heavily on buyers.
ECB rate call due in the back half of the week to constrain Euro bids.

EUR/USD fell short of recent bullish momentum, pulling back sharply after a brief jump above 1.0900 to kick off the new trading week and keeping price action strung out along the top end of a descending price channel. Traders are weighing their stance on the Greenback as Fedspeak dominated investor sentiment with appearances from key policymakers on Monday.

Forex Today: Markets’ attention shifts to data and Fedspeak

Federal Reserve Chairman Jerome Powell acknowledged the recent progress on inflation on Monday. He was followed by a less important statement from San Francisco Fed President Mary Daly. Both key Fed policymakers emphasized that there is no fixed guidance on when Fed rate cuts will happen and that decisions will be made on a meeting-by-meeting basis.

Read more:
Fed’s Powell: Decisions to be made on a meeting-by-meeting basis
Fed’s Daly: Confidence is growing that inflation is heading lower

According to the CME’s FedWatch Tool, the market is expecting a rate cut in September. Rate traders are now pricing in a 100% chance that the Fed funds rate will decline by at least 25 basis points when the Federal Open Market Committee (FOMC) meets on September 18.

The upcoming US Retail Sales data release on Tuesday will conclude the recent series of important US economic data releases. It is anticipated that there will be a continued slowdown in US economic activity, with US Retail Sales expected to remain unchanged at 0.0% month-over-month in June.

Euro traders will be buckling down for the wait to Thursday’s latest rate call from the European Central Bank (ECB). A follow-up rate cut to June’s quarter-point trim is anticipated, but not expected until September with a third 2024 rate cut penciled in for December. As noted by Pimco Executive Vice President and Portfolio Manager, Konstantin Veit pointed out that “the ECB has clearly signalled its preference to make interest rate decisions at forecast meetings, i.e. in September and December, and not in July, October or January”.

EUR/USD technical outlook

Despite tipping into a fresh 16-week high on Monday, EUR/USD flubbed a challenge of the 1.0900 handle, easing back and leaving daily candlesticks mired in technical consolidation at the top end of a rough descending channel. Fiber ended a three-day winning streak, and is poised to tumble out of a bullish stance that dragged bids into the green for all but two of the last 12 consecutive trading days.

EUR/USD daily chart

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.

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