- EUR/USD is down 0.30%, with the dollar’s strength facing some pressure as traders await updates from the Fed and the Jackson Hole meeting.
- A swift end to the Ukrainian conflict could lead to stability in the energy market, which would be beneficial for eurozone growth and positively impact the euro.
- This week is data-heavy for the EU: PMI, inflation figures, and Germany’s GDP may influence market sentiment and the ECB’s outlook.
The EUR/USD starts the week lower by 0.30%, following discussions involving Russian President Vladimir Putin last Friday. Traders are looking toward an upcoming meeting with President Donald Trump and Ukraine’s Volodymyr Zelensky. Currently, the pair is trading at 1.1669 after reaching a peak of 1.1715.
There have been some positive developments from the discussions with Trump, Zelensky, and European leaders from the White House. Trump noted that the day was successful, provided Russia agrees to security guarantees, while also addressing German Chancellor Scholz’s call for a ceasefire. Historically, conflicts have often ended with U.S. intervention, even without a formal ceasefire.
Trump expressed interest in organizing a tripartite meeting involving the U.S., Ukraine, and Russia.
As the EU is a significant energy importer, a quick resolution to the war is seen as bullish for the euro. This could lead to price stability for oil and natural gas across the bloc.
Meanwhile, traders are also focused on the upcoming release of the latest Federal Reserve monetary policy minutes and a keynote address by Chairman Jerome Powell at the Jackson Hole Symposium.
This week’s EU Economic Calendar includes inflation data for the EU, the HCOB Flash PMI for August, and Germany’s GDP figures.
Daily Digest Market Mover: EUR/USD will rise as the dollar strengthens
- The euro has paused its rally as the U.S. dollar gained value. The dollar index rose by 0.30% to 98.13.
- The EUR/USD’s trajectory is closely linked to the contrasting monetary policies of the Fed and the European Central Bank (ECB). Chances that the Fed will cut rates in September have dropped from around 95% to 86% post the U.S. Producer Price Index report. Conversely, the ECB is expected to maintain current rates, with a 92% probability of no change and only an 8% chance of a 25 basis point decrease.
- Last Friday, strong retail sales data indicated healthy consumer spending in the U.S. However, consumer sentiment declined from 61.7 in July to 58.6 in August, suggesting growing pessimism about the economic outlook, mainly due to rising inflation expectations.
- In light of these developments, traders have lowered the likelihood of significant rate cuts by the Fed. Instead, they are starting to price in a more stable central bank stance.
Technical Outlook: EUR/USD struggles below 1.1700, sellers eye 1.1600
The uptrend for EUR/USD hit a snag on Monday, with traders unable to maintain gains above the 1.1700 mark, leading to a pullback towards 1.1650. If this level gives way, the pair might test the 50-day Simple Moving Average (SMA) at 1.1640. Further declines could push it down to the 100-day SMA at 1.1600 and potentially to 1.1460.
Conversely, if buyers regain momentum, they may test the resistance level at 1.1700. A strong push could target the overhead resistance at 1.1788, along with the 1.1800 and 1.1829 peaks reached earlier this year.
Euro FAQ
The euro serves as the currency for 19 countries in the eurozone and is the second-most traded currency globally, following the U.S. dollar. Last year, it constituted 31% of all forex trades, averaging a daily turnover of over $2.2 trillion. The EUR/USD pairing is the most actively traded worldwide, making up about 30% of all transactions.
The European Central Bank (ECB) sits in Frankfurt and governs the eurozone’s monetary policy, aiming to ensure price stability, which often entails managing inflation rates. Interest rate adjustments are a primary tool for the ECB, influencing the euro’s strength relative to other currencies.
Inflation data in the eurozone is essential, tracked by the Harmonized Index of Consumer Prices (HICP). An unexpected rise in inflation often triggers the ECB to raise interest rates, especially if it exceeds the target of 2%. Generally, higher interest rates are favorable for the euro, making investment in the region more appealing.
Economic health indicators, like GDP figures, PMI, employment numbers, and consumer sentiment studies, greatly impact the euro’s value. Strong economic growth likely bolsters the euro, potentially encouraging the ECB to adjust interest rates upwards, leading to further appreciation of the currency.
Trade balances also significantly influence the euro, indicating the difference between exports and imports. Positive net trade balances tend to enhance currency value, as increased demand from foreign buyers can strengthen the currency.
