EUR/USD stays firm ahead of speeches from ECB Lagarde, Fed Harker
- EUR/USD clings to gains above 1.1150 as more ECB policymakers show concerns over price pressures remaining persistent.
- Investors await ECB Lagarde’s speech for fresh interest-rate guidance.
- The US Dollar remains under pressure on escalating Fed dovish bets.
EUR/USD gathers strength, aiming to reclaim the key resistance of 1.1200 in Friday’s European session. The major currency pair strengthens as the Euro (EUR) performs strongly on growing speculation that the European Central Bank (ECB) will leave its Deposit Facility rate unchanged at 3.5% in its October monetary policy meeting.
A few ECB policymakers have voiced their willingness to follow a gradual policy-easing approach as they want to see more evidence pointing to a slowdown in inflationary pressures. This week, ECB policymakers such as Governing Council member Peter Kazimir, Executive Board Member Isabel Schnabel, and President of Deutsche Bundesbank Joachim Nagel said that price pressures are still higher than where the bank wants them.
Specifically, ECB Isabel Schnabel said on Thursday that sticky services inflation is keeping headline inflation at an elevated level.
For fresh guidance on interest rates, investors will focus on ECB President Christine Lagarde’s speech, which is scheduled at 15:00 GMT. In her latest comments at ECB policy’s press conference on September 12, Lagarde refrained from proving a pre-defined interest rate cut path.
"The interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission," she said.
Daily digest market movers: EUR/USD gains as market bets for ECB rate cuts in October wane
- EUR/USD remains firm above the crucial support of 1.1150 in Friday’s European trading hours. Lately, the major currency pair has performed strongly due to weakness in the US Dollar (USD). The US Dollar Index (DXY), which gauges the Greenback’s value against six major peers, hovers above the year-to-date low of 100.21.
- The Greenback has weakened following the Fed’s bumper interest rate cut decision and increasing market expectations that the US central bank will continue with an aggressive policy-easing cycle. The Fed reduced interest rates by 50 basis points (bps) as policymakers seem to focus on reviving labor market strength as inflation is declining to the bank’s target of 2%.
- On the interest rate guidance, Fed policymakers see the federal fund rate heading to 4.4% by year-end, according to the latest dot plot. However, traders expect interest rates to decline further, by 75 bps to 4.00%-4.25%, according to the CME FedWatch tool.
- The preliminary consumer confidence reading for the Eurozone will be published at 14:00 GMT. Expectations are for a slight improvement of the index, to -13 in September from -13.5 in August.
- In Friday’s New York session, US investors will focus on Philadelphia Fed Bank President Patrick Harker’s speech at 18:00 GMT for fresh guidance on interest rates.
Technical Analysis: EUR/USD stays above 1.1150
EUR/USD holds trade above 1.1150 in European trading hours. The near-term outlook of the shared currency pair is upbeat on the upward-sloping 20-day Exponential Moving Average (EMA) near 1.1088.
The major currency pair remains firm as it has confidently recovered after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000.
The 14-day Relative Strength Index (RSI) moves higher above 60.00. A bullish momentum would trigger if it sustains above the aforementioned level.
Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. A decisive break above the same would drive the asset toward July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.
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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