Market Data 
- EUR/USD clings to recovery near 1.1100 as weak US Job Openings data pushes the US Dollar on the back foot.
- The major trigger for the US Dollar will be the August US NFP report on Friday.
- The ECB is almost certain to cut interest rates this month.
EUR/USD holds onto Wednesday’s recovery slightly below the round-level resistance of 1.1100 in Thursday’s European session. The major currency pair bounced back sharply on Wednesday after the release of the weaker-than-projected United States (US) JOLTS Job Openings data for July boosted market expectations for the Federal Reserve (Fed) to begin the long-awaited policy-easing cycle aggressively.
A sharp increase in market speculation for the Fed’s large interest rate cut this month weighed heavily on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its downside to near 101.20.
The JOLTS Job Openings data showed that job vacancies posted in July were lower at 7.67 million from a downwardly revised 7.91 million in June and below the estimates of 8.1 million. Weak job market data came in as red flags to the labor market.
For meaningful updates on current labor market conditions, investors await the US Nonfarm Payrolls (NFP) data for August, which will be published on Friday.
In today’s session, the US Dollar will be influenced by the ADP Employment Change and ISM Services Purchasing Managers Index (PMI) data for August, which will be published at 12:15 GMT and 14:00 GMT, respectively. Economists estimate that payrolls in the private sector rose by 145K from 122K in July. In the same period, activity in the service sector is projected to have expanded at a slower pace, with PMI coming in at 51.1 from the prior reading of 51.4. Upbeat private payrolls and Services PMI data would diminish market speculation for Fed large interest rate cuts, while soft data would strengthen them
Daily digest market movers: EUR/USD turns sideways after a sharp recovery ahead of US heavy-data day
- EUR/USD trades in a tight range below 1.1100, with investors focusing on a slew of US economic data. In the Eurozone, investors await the Retail Sales data for July that will influence the next move in the Euro (EUR), which will be published at 09:00 GMT. Majorly, the Euro will be guided by the market speculation for the European Central Bank’s (ECB) September monetary policy, in which the central bank is expected to cut its key borrowing rates.
- Economists estimate the Retail Sales to have grown by 0.1% after contracting 0.3% in June on a monthly as well as annual basis. A slight improvement in sales at retail stores would be insufficient to dampen market speculation that the ECB will resume its policy-easing cycle this month, which started in June, after pausing in July.
- The ECB is widely anticipated to cut interest rates this month as officials have remained worried about poor growth prospects, with confidence that inflationary pressures continue to ease consistently. ECB Governing Council member François Villeroy de Galhau said in an interview with Bloomberg last week, “There are good reasons for the central bank to consider cutting its key interest rates in September.” Villeroy added, “Unfortunately, our growth remains too weak.” He further added, “The balance of risks still needs to be monitored in Europe.”
- Meanwhile, Eurozone growth concerns have deepened further as the final estimate HCOB PMI report showed that the overall economic activity expanded at a slower pace of 51.0 from the flash reading of 51.2. The Composite PMI expanded moderately due to slower growth in the service sector and a continuous contraction in the manufacturing sector.
Technical Analysis: EUR/USD aims to recapture 1.1100
EUR/USD trades sideways near 1.1080 on Thursday after a sharp recovery from a fresh two-week low near 1.1025. The near-term outlook of the major currency pair has improved as it manages to gain firm footing near the 20-day Exponential Moving Average (EMA) around 1.1055.
The longer-term outlook is also bullish as the 50-day and 200-day EMAs at 1.0970 and 1.0865, respectively, are sloping higher. Also, the shared currency pair holds the Rising Channel breakout on a daily time frame.
The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.
On the upside, the recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. Meanwhile, the downside is expected to remain cushioned near the psychological support of 1.1000.
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.
