Euro appears cautious above 1.0800 ahead of key US data

The Euro maintains optimism above 1.0800 vs. the US Dollar.
Stocks in Europe see another positive start to the session.
EUR/USD attempts to consolidate the breakout of the 1.0800 barrier.
The USD Index (DXY) pierces the 104.00 support amidst a mildly offered bias.
US and German yields kick off the European session in the red.
Consumer Confidence in Germany worsens in September.

Price action around the Euro (EUR) appears inconclusive vs. the US Dollar (USD), motivating EUR/USD to hover around the 1.0800 neighbourhood on turnaround Tuesday.

In the meantime, the Greenback also exchanges ups and downs around the 104.00 region when tracked by the USD Index (DXY) in a context where US yields show renewed weakness amidst speculation of a Fed’s pause at the September event vs. a so far preferred quarter-point rate hike in November.

Looking at the broader picture, there is a renewed discourse regarding monetary policy, specifically the Federal Reserve's dedication to maintaining a more stringent approach for a prolonged period. This heightened attention stems from the remarkable resilience exhibited by the US economy, even in the face of a slight easing in the job market and declining inflation figures observed in recent months.

At the same time, internal conflicts among the members of the European Central Bank (ECB) are emerging regarding the possibility of extending the restrictive policy stance beyond the summer season. These differences of opinion are contributing to the persistent uncertainty around the central bank and act as a source of potential weakness for the single currency.

On the domestic data space, Consumer Confidence in Germany worsened to -25.5 when tracked by GfK for the month of September, while Consumer Confidence in France held steady at 85 in August.

Across the Atlantic, the Conference Board will publish its Consumer Confidence measure along with the FHFA House Price Index and JOLTs Job Openings.

Daily digest market movers: Euro enters the pre-NFP lull around 1.0800

The EUR gyrates around the 1.0800 zone vs. the USD.
German and US bond yields lose further momentum on Tuesday.
The US labour market, inflation figures take centre stage this week.
Japanese jobless rate tcked higher in July.
Fed’s tighter-for-longer narrative keeps running in the background.
The probability of a Fed’s 25 bps rate raise in November hovers around 50%.

Technical Analysis: Euro could still slip back to the 1.0760 area

EUR/USD is battling to keep the trade above the key 1.0800 hurdle in quite an apathetic trading session.

Further decline could motivate EUR/USD to revisit the August low of 1.0765 (August 25) ahead of the May low of 1.0635 (May 31) and the March low of 1.0516 (March 15). The loss of this level could prompt a test of the 2023 low at 1.0481 (January 6) to re-emerge on the horizon.

Occasional bouts of strength, in the meantime, should meet provisional resistance at the 55-day SMA at 1.0965 prior to the psychological 1.1000 barrier and the August high at 1.1064 (August 10). Once the latter is cleared, spot could challenge the weekly top at 1.1149 (July 27). If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 (July 18). Further up comes the 2022 high at 1.1495 (February 10), which is closely followed by the round level of 1.1500.

Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA (1.0807) is breached in a convincing fashion.

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.