EUR/USD Breaks 1.1300 Mark
- The EUR/USD climbed above 1.1300 on Wednesday.
- Market sentiment soured towards the US dollar after a rise in Treasury yields and falling bond demand.
- PMI reports are set to come out on Thursday from both the US and Europe.
The EUR/USD pair gained traction on Wednesday, surpassing the 1.1300 level. This rise marks its third consecutive day of increases, with the shift in market sentiment pulling away from the US dollar following issues in the Treasury market. The recent government bond auctions saw a dip in demand, leading to a broader pullback from US assets, including the dollar, which is typically viewed as a safe haven.
US Treasury yields for 2020 reached over 5% on Wednesday, causing investors to withdraw from US capital assets. Despite rising yields, there remains a sense of financial uncertainty, reflected in the bid-to-cover ratio, which is now below its six-month average. Currently, the US government appears poised to advance President Donald Trump’s significant federal tax and budget initiative, which could add around $4 trillion to the deficit over the next decade. Trump has been vocal about his goals to decrease the deficit and eliminate governmental debt.
Thursday’s economic calendar includes the Purchase Manager Index (PMI) figures. The pan-European PMI is anticipated to see a slight uptick, while US PMI outcomes are expected to vary. The European Services PMI is projected to inch up from 50.1 to 50.3, while the manufacturing PMI might improve from 49.0 to 49.3. For the US, the manufacturing PMI is expected to dip from 50.2 to 50.1, although the services component is forecasted to remain steady at 50.8.
EUR/USD Price Outlook
The bullish trend for EUR/USD is still evident following a technical rebound from the 50-day exponential moving average (EMA) near 1.1100. The pair has closed positively for most of the past seven trading days, and the sentiment leans towards continued growth as it seeks stability above 1.1300.
While technical indicators suggest room for potential reversals in the short term, the currency is still trading above the 200-day EMA around 1.0840.
EUR/USD Daily Chart
Euro FAQ
What is the euro?
The euro serves as the currency for 19 countries within the eurozone, making it the second most traded currency globally after the US dollar. In 2022, it represented 31% of all forex trades, with an average daily turnover exceeding $2.2 trillion. The EUR/USD is the foremost currency pair traded worldwide, followed by EUR/JPY, EUR/GBP, and EUR/AUD.
What role does the European Central Bank play?
The European Central Bank (ECB), situated in Frankfurt, is responsible for setting interest rates and overseeing the monetary policy for the eurozone. Its primary goal is to maintain price stability, which involves controlling inflation or promoting growth. Interest rate adjustments are its main tool, and higher rates generally benefit the euro.
How does inflation impact the euro?
Inflation in the eurozone is gauged using the harmonic index of consumer prices (HICP), which is vital for the euro. If inflation exceeds expectations, the ECB may need to raise interest rates, especially if it goes above the 2% target. Higher interest rates in comparison to other currencies can make the region more appealing to global investors.
What economic indicators influence the euro?
Indicators like GDP, Manufacturing and Services PMIs, Employment, and Consumer Sentiment Surveys can all influence the euro’s value. Strong economic performance can attract foreign investment and potentially lead to higher interest rates, which bolster the euro. Conversely, weak data could result in depreciation.
What are trade balances, and why are they important?
Trade balances represent the difference between export income and import expenditures over time. A country with strong export demand sees its currency appreciate due to increased foreign interest in its goods. Therefore, a positive trade balance typically strengthens the currency.
