EUR/USD stabilizes above 1.0800 with US NFP and French elections in focus
- EUR/USD refreshes a three-week high near 1.0830 due to multiple tailwinds.
- The Euro strengthens as the far right may fail to gain an outright majority in French elections.
- The US Dollar weakens due to multiple tailwinds, with US NFP in focus.
EUR/USD posts a fresh three-week high near 1.0830 in Friday’s European session. The major currency pair strengthens as the Euro’s outlook improves ahead of the second round of French elections, scheduled for Sunday, and sheer weakness in the US Dollar (USD).
The appeal for the Euro improves amid expectations that the Marine Le Pen-led far-right National Rally would fail to convert its victory of the first round into an absolute majority due to the tactical withdrawal of at least 200 candidates from Sunday’s legislative elections by a coalition of French President Emmanuel Macron-led entrist alliance and the left-wing.
Meanwhile, speculation for the European Central Bank (ECB) delivering subsequent rate cuts on July 18 has diminished as disinflation in the Eurozone appears to be stalling. The preliminary core Harmonized Index of Consumer Prices (HICP) that excludes volatile items grew steadily by 2.9% year-on-year in June.
On Friday, investors await the Eurozone Retail Sales data for May, which will be published at 09:00 GMT. The Retail Sales are expected to have expanded by 0.2% in the month after contracting 0.5% in April. Annually, Retail Sales are estimated to have grown marginally by 0.1% after remaining unchanged in April.
Daily digest market movers: EUR/USD strengthens at US Dollar’s costs
- EUR/USD trades comfortably above the round level of 1.0800 at the cost of the US Dollar. Growing speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting has built significant pressure on the Greenback. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has extended its losing spell for the seventh trading session and has posted a fresh three-week low near 105.00.
- Traders raised rate-cut bets for September heavily due to various factors, such as Fed Chair Jerome Powell's sheer confidence that the central bank has made considerable progress in inflation, easing labor market strength, and contraction in the Services PMI.
- The June ADP Employment Change report showed unexpectedly slowing private sector hiring. In the same period, the Services PMI showed a contraction in the sector and dropped to its lowest level in four years.
- In Friday’s session, the major trigger for the US Dollar will be the United States Nonfarm Payrolls (NFP) data for June, which will be published at 12:30 GMT. The US NFP report is expected to show that 190K new workers were hired, compared to 272K in May. The Unemployment Rate is expected to remain steady at 4.0%.
- Investors will pay close attention to Average Hourly Earnings data, a measure of wage growth that has been a major driving factor behind high inflation in the service sector. Annual Average Hourly Earnings are estimated to have decelerated to 3.9% from May’s reading of 4.1%. On monthly, the wage growth measure is expected to have grown at a slower pace of 0.3% from the prior release of 0.4%.
Technical Analysis: EUR/USD posts fresh three-week high
EUR/USD extends its winning spell for the seventh day on Friday. The major currency pair strengthens after stabilizing above the 20-day and 50-day Exponential Moving Averages (EMAs), which trade around 1.0750 and 1.0770, respectively. The overall trend of the shared currency pair has also strengthened as it has jumped above the 200-day EMA, which trades around 1.0800.
The Symmetrical Triangle formation on the daily timeframe exhibits a sharp volatility contraction, which indicates low volume and narrow ticks.
The 14-day Relative Strength Index (RSI) reaches 60.00. Should the bullish momentum be triggered if it breaks above this level?
Euro FAQs
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%).
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.
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.
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.
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.
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