The Euro (EUR) increased by 0.15% to approximately 1.1230 against the US Dollar (USD) in the Asian market on Tuesday. This uptick comes as the US Dollar experiences pressure, particularly with Meta’s third-quarter earnings report looming on Wednesday.
As of now, the US Dollar Index (DXY), which measures the dollar’s strength against six other major currencies, has dipped 0.16% to about 101.80. It’s worth noting that the DXY has been under strain for the past week, raising concerns about the ongoing investment in Artificial Intelligence (AI) by major US companies.
Meta’s upcoming earnings report will indicate whether these large tech firms are following through on their investment promises from previous quarters.
Goldman Sachs has stated that Meta is among five AI hyperscalers projected to boost their combined capital expenditures to around $1.2 trillion next year, according to reports from Reuters.
On a different note, the Euro faces broader challenges due to persistent tensions between Russia and Ukraine, coupled with fiscal uncertainties in France.
Euro underperforms as French assets lag and geopolitical worries build
Scotiabank strategists have pointed out that the Euro is encountering difficulties, citing “widespread and violent protests in France due to poor conditions in schools and hospitals, along with general affordability concerns” as significant factors affecting sentiment. They also mention that French stocks and bonds are particularly affected, with bond spreads compared to Germany expanding to 145 basis points, reaching the higher end of recent historical ranges.
Geopolitical risks are compounding this cautious outlook. Scotiabank highlights comments from President Zelenskyy, who suggested that “the US is encouraging Ukraine, rather than Russia, to concede,” which is adding to the overall geopolitical unease surrounding the Eurozone.
EUR/USD Technical Analysis
Looking at the daily chart, EUR/USD is trading around 1.1232, reflecting a bearish short-term outlook as it remains below the 20-period exponential moving average (EMA) at 1.1274. The failure to reclaim this EMA suggests that recent rallies are likely limited by prevailing supply, while the Relative Strength Index (RSI) at 40.28 shows a recovery from oversold conditions but stays below the midpoint, indicating only a slight improvement in bearish momentum rather than a clear bullish reversal.
On the upside, immediate resistance appears at the 20-period EMA of 1.1274, which must be breached to alleviate the current downward pressure and potentially pave the way for a more sustained corrective phase. On the downside, the crucial support level is the low from October 14 at 1.1113.
The Euro serves as the currency for the 20 countries in the Eurozone, making it the second most traded currency globally after the US Dollar. In 2022, it accounted for about 31% of foreign exchange transactions, with an average daily turnover exceeding $2.2 trillion. The EUR/USD pair is the most heavily traded currency pair worldwide, representing around 30% of all transactions.
The European Central Bank (ECB), headquartered in Frankfurt, holds the responsibility for the Eurozone’s monetary policy and interest rate decisions. The ECB’s primary goal is to maintain price stability, managing inflation or fostering growth through interest rate adjustments.
Data releases are essential in gauging the economy’s health, which can influence the Euro. Key indicators like GDP and employment reports significantly affect the currency’s direction, as stronger economic data typically bolsters the Euro, while weaker data may lead to depreciation.
