The EUR/USD ended Friday with losses of 0.10%, but finished the week higher by 0.51% as risk appetite soured on growing speculation that the Federal Reserve will pause its easing cycle next month. Still, the pair closed above 1.1600, paving the way for further upside.
Euro ends slightly lower on Friday but posts weekly gains, boosted by mixed signals from the Fed and steady eurozone growth
As of Wednesday, most Federal Reserve officials remained hawkish. The presidents of the Fed’s regional banks, led by Beth Hammack, Raphael BosticAlberto Musalem, Susan Collins, Neel Kashkari and Jeffrey Schmid favored a mildly restrictive monetary policy,
On the dovish front are Fed Governor Stephen Miran, San Francisco’s Mary Daly or even Governors Christopher Waller and Michelle Bowman, who say the labor market is deteriorating.
Fed Chairman Jerome Powell and New York Fed John Williams lie in a neutral stance. However, Fed Chairman Powell revealed that a December cut was not a foregone conclusion and kept his options open due to a lack of economic data.
The money market priced in a 56% probability of a 25 basis point rate cut, down from around 70% a year ago, the Prime Market Interest Rate Probability tool revealed.
In Europe, data revealed that the economy grew by 0.2% quarter-on-quarter in the third quarter. Gross domestic product (GDP) was revised upwards from 1.3% to 1.4% year-on-year.
Daily market moves: Euro gave back gains on hawkish Fed comments
- The U.S. dollar index ( DXY ), which tracks the greenback’s performance against six other currencies, was up 0.08% at 99.31 at the time of writing.
- On Friday, Federal Reserve Governor Stephen Miran and Kansas City Fed President Jeffrey Schmid crossed the wires. The former doubled down on its dovish stance, arguing that recent data “should make the Fed dovish, not less,” and warned that policymakers risk mistakes if they rely too much on backward-looking indicators.
- Conversely, Schmid reiterated his reasoning for his opposition to the latest rate cut, saying, “My rationale for not agreeing to a rate cut in the last session continues to lead my thinking toward December.” He added that he considers the current stance of monetary policy to be “only slightly restrictive”, which he believes is appropriate.
EUR/USD Technical Outlook: Holding firm around 1.1600
EUR/USD maintains a bearish tone with buyers unable to decisively break the 50-day simple moving average (SMA) at 1.1659. Short-term momentum improved, with the Relative Strength Index (RSI) ticking higher, signaling increasing bullish pressure. A decisive break above the 50-day SMA would reveal the 1.1700 level.
Conversely, if EUR/USD breaks below 1.1600, it would immediately support the 20-day SMA near 1.1583, followed by 1.1500. A break of these levels would reveal the August 1 cycle low of 1.1391 as another bearish target.
Euro frequently asked questions
The Euro is the currency of the 20 countries of the European Union that belong to the Eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world and represents an estimated 30% discount on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
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 raising or lowering interest rates. Relatively high interest rates – or expectations of higher rates – usually benefit the euro and vice versa. The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. The heads of the national banks of the eurozone and six permanent members, including ECB President Christine Lagarde, decide.
Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially if it is above the ECB’s 2% target, it obligates the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will usually benefit the euro, making the region more attractive as a place for global investors to park their money.
The published data assesses the health of the economy and may have an 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 will this attract more foreign investment, but it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the 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 particularly significant as they account for 75% of the euro area economy.
Another important data release for the euro is the trade balance. This indicator measures the difference between what a country earns on exports and what it spends on imports for a given period. If a country produces a highly sought-after export, then its currency will gain in value purely due to the extraordinary demand created by foreign buyers who want to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa a negative balance.
