- The euro is hovering near a low of 1.1730 after experiencing a 0.6% drop on Wednesday.
- Weak economic reports from the eurozone, along with cautious statements from the Fed, contributed to the euro’s decline.
- Market sentiment will be influenced today by U.S. Q2 GDP data and more speeches from Fed officials.
As of Thursday, the EUR/USD is at 1.1735, pulling back from its high above 1.1800 reached the previous day. Poor consumer confidence in Germany is putting pressure on the euro, while U.S. Fed officials are maintaining a cautious stance on rate cuts, which is bolstering the dollar.
New data from Germany shows the GFK Consumer Trust Index has dropped to an unexpectedly low level of -22.3, worse than the revised -22.5 from the previous month. These numbers follow a business environment survey, raising worries about the eurozone’s economic strength.
On Wednesday, San Francisco Fed President Mary Daly expressed some openness to loosening monetary policy but emphasized the need to balance the Fed’s dual goals of employment and inflation.
Daly’s remarks align with comments made by Federal Reserve Chairman Jerome Powell, who, in a speech on Tuesday, expressed concerns about inflation. He indicated that rate cuts will be gradual, which goes against the aggressive easing that some in the market have anticipated.
Today’s attention will be on the final reading of the U.S. GDP and various Fed officials’ speeches, but the highlight of the week will be Friday’s data on personal consumption expenditures (PCE), which is the Fed’s preferred inflation measure.
Market Overview: Cautious Fed Rhetoric Boosts Dollar
- The U.S. dollar is retaining its gains as Fed officials seem to be questioning the market’s expectation for rate cuts. Daly suggested on Wednesday that further easing might be postponed until next year, which contrasts with more dovish expectations following last week’s Fed meeting.
- In recent eurozone data, economic conditions seem to have worsened, dropping from an index of 89.0 in August to 87.7 in September. Additionally, current economic evaluations fell from 86.4 to 85.67, with future expectations dropping from 91.6 to 89.7.
- Later today, the U.S. GDP report is expected to confirm an annual growth rate of 3.3% for Q2, following a 0.5% contraction in the first quarter.
- Weekly unemployment claims are also drawing interest, anticipated to rise to 235K from 231K, which, if higher than expected, could undermine the dollar’s performance.
- On the Fed front, Kansas City President Jeffrey Schmidt and New York President John Williams are scheduled to speak at 1:00 GMT. They will be joined by other Fed officials, including Rory Logan, Mary Daly, and Michelle Bowman.
Technical Analysis: EUR/USD Breaks Trendline Support at 1.1750
The EUR/USD faced strong bearish pressure on Wednesday, erasing gains from the previous days and breaking below the trendline support established on September 2nd. Indicators on the 4-hour chart suggest continued negative momentum, which solidifies concerns about a shift in the trend.
Immediate support is now found around the 1.1730 mark, while levels from September 12th at nearly 1.1700 and the September 11th low of 1.1660 are significant points of interest. Conversely, resistance is seen around 1.1750, and surpassing this could target highs from September 23rd near 1.1850.
Euro FAQ
The euro is the currency for 19 countries in the European Union, ranking second in global trading frequency, following the U.S. dollar. In 2022, it represented 31% of all forex transactions, achieving a daily turnover of over $2.2 trillion.
The European Central Bank (ECB), based in Frankfurt, manages eurozone monetary policy and sets interest rates, with a primary goal of maintaining price stability.
Eurozone inflation is typically measured using the Harmonized Index of Consumer Prices (HICP) and heavily influences the ECB’s decisions. If inflation exceeds expectations, the ECB often raises rates to control it.
Various economic indicators, such as GDP, PMIs, and consumer sentiment, can affect the euro’s strength, with strong performance potentially leading to higher interest rates and improved currency value.
Trade balances are also crucial; a positive difference between exports and imports typically strengthens a country’s currency as demand for its goods rises.
