During the early European session on Tuesday, the Euro (EUR) almost touched year-to-date highs above 1.1000 against the US Dollar (USD). Overall, the single currency is backed by Eurozone bank results, which indicate that the industry fared better than predicted during the March crisis. Hawkish statements by European Central Bank (ECB) policymakers help the Euro even more, as the prospect of higher interest rates boosts capital inflows into Europe. Technically, despite an intraday retreat, the general trend is up, with the odds favoring longs over shorts.
Market movers in the EUR/USD
- The Euro gains strength as a result of comments by Pierre Wunsch, president of Belgium’s Banque Nationale, who stated, “We are waiting for wage growth and core inflation to go down… before we can arrive at the point where we can pause (hiking rates).”
- The ECB’s chief economist, Philip Lane, has stated publicly that interest rates will rise at the May 4 meeting, but whether they will climb further depends on the facts.
- Previously, the Irishman stated that a lot is riding on the status of Eurozone banks, as determined by the ECB’s Bank Lending Survey, which will be issued on May 2, as well as April flash HICP inflation data, which will be released on the same day.
- However, strong first-quarter profitability by European banks due to greater interest margins suggests that the BLS will paint a positive image.
- Banco Santander, for example, recently reported Q1 earnings of 2.57 billion, above profit projections of 2.4 billion.
- Christine Lagarde, President of the European Central Bank, has stated that there is still “some way to go” before Frankfurt stops raising interest rates.
- The US Dollar is suffering because Federal Reserve (Fed) officials are subject to a two-week blackout period before the May 4 meeting, during which they are not permitted to remark.
- Before the blackout, Bullard of the St. Louis Fed was bullish, stating he expected further rate hikes due to persistent inflation and exaggerated recession worries.
- Unexpectedly robust first-quarter earnings from US banks indicate that the sector’s March crisis may be in the rearview mirror, strengthening the Greenback even further.
- Consumer Confidence for April, which is due at 14:00 GMT, is the most important data release for the US Dollar. There is no significant macroeconomic data for the Euro.
Technical analysis of the EUR/USD: approaching year-to-date highs
EUR/USD comes out of a right-angled triangle (more clearly seen on the 4-hour chart) and extends the broader medium-term uptrend that began almost eight months ago. The pair was just a few pips away from reaching the year-to-date highs of 1.1075 before rolling over and pulling back – it is now trading in the lower 1.10s. The chances are stacked in favor of the dominating Euro bullish trend continuing.
A clear break above the 1.1075 yearly highs reached on April 14 would affirm the Euro’s rise to the next significant resistance level, which is positioned around 1.1190, where the 200-week Simple Moving Average (SMA) is located.
For simplicity, a ‘decisive break’ is defined as either a ‘breakout candle’ – a long green bullish daily candle that extends above the 1.1075 highs and closes around its high – or three smaller bullish green candles in a row that breaks above the highs.
Alternatively, a break below the 1.0909 lows of April 17 would call the uptrend into question, potentially resulting in a deeper fall below 1.0830. A daily close below that level could result in an extension down to the support confluence at 1.0775-1.0800, indicating a likely reversal of the current trend.
Euro Common Questions
Q1. What exactly is the Euro?
The Euro is the currency of the Eurozone, which consists of 20 European Union countries. It is the world’s second most traded currency, trailing only the US dollar. It accounted for 31% of all foreign exchange transactions in 2022, with an average daily turnover of more than $2.2 trillion.
The most widely traded currency pair in the world is EUR/USD, which accounts for over 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
Q2. What is the European Central Bank, and how does it affect the Euro?
The European Central Bank (ECB), headquartered in Frankfurt, Germany, serves as the Eurozone’s reserve bank. The ECB controls interest rates and monetary policy.
The core mandate of the European Central Bank is to preserve price stability, which implies either restraining inflation or boosting growth. Its principal tool is the adjustment of interest rates. Relatively high interest rates, or the expectation of rising rates, typically boost the Euro, and vice versa.
The ECB Governing Council meets eight times a year to make monetary policy decisions. Decisions are taken by the heads of Eurozone national banks and six permanent members, including Christine Lagarde, President of the European Central Bank.
Q3. What effect does inflation data have on the value of the Euro?
Inflation data from the Eurozone, as measured by the Harmonized Index of Consumer Prices (HICP), is a significant statistic for the Euro. If inflation exceeds expectations, especially if it exceeds the ECB’s 2% target, the ECB is forced to hike interest rates to bring it back under control.
High-interest rates in comparison to its peers normally boost the Euro, as they make the region more appealing as a place for global investors to store their money.
Q4. How does economic data affect the Euro’s value?
Data releases provide an indication of the health of the economy and can have an impact on the Euro. GDP, Manufacturing, and Services PMIs, employment, and consumer sentiment surveys are all indicators that can impact the direction of the single currency.
A healthy economy benefits the Euro. Not only does it stimulate greater foreign investment, but it may also urge the ECB to raise interest rates, thus strengthening the Euro. Otherwise, the Euro is likely to decrease if economic data is weak.
Economic data for the eurozone’s four largest economies (Germany, France, Italy, and Spain) are especially important because they account for 75% of the Eurozone’s economy.
Q5. What effect does the Trade Balance have on the Euro?
The Trade Balance is another important data release for the Euro. This statistic calculates the difference between what a country makes from exports and what it spends on imports over a specific time period.
If a country produces highly sought-after exports, its currency will appreciate due to increased demand from foreign purchasers wishing to purchase these commodities. As a result, a positive net Trade Balance enhances a currency, while a negative balance weakens it.
