Market Data 
- EUR/USD remains on the backfoot near 1.0950 as the Fed is expected to follow a gradual rate-cut approach.
- US labor demand remained robust and wage growth increased in September.
- ECB’s Villeroy supported another interest rate cut on October 17.
EUR/USD struggles to gain ground near the key support of 1.0950 in Monday’s European session. The major currency pair remains on the backfoot as the US Dollar (USD) clings to gains near a fresh seven-week high, prompted by surprisingly upbeat Friday’s United States (US) labor market data for September.
The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, trades close to 102.50.
The US employment report showed a resilient labor demand and strong wage growth. As per the report, the economy added 254K non-farm jobs, which was significantly higher than the estimates of 140K and the former release of 159K, upwardly revised from 142K. The Unemployment Rate decelerated to 4.1% from expectations and the August print of 4.2%.
Upbeat employment data forced traders to push back market expectations for the Federal Reserve (Fed) to reduce interest rates by 50 basis points (bps) again in November. The Fed started its policy-easing cycle with a larger-than-usual interest rate cut by 50 bps in September.
Meanwhile, renewed fears of inflation remaining persistent after the release of the hotter-than-expected Average Hourly Earnings for September also expunged Fed large rate cut bets. Average Hourly Earnings, a key measure of wage growth, accelerated at a faster-than-expected pace to 4.0% year-over-year. Month-on-month wage growth measure rose by 0.4%.
For more clarity on the interest rate outlook, investors will focus on the US Consumer Price Index (CPI) data for September, which will be published on Thursday.
Daily digest market movers: EUR/USD remains under pressure due to multiple headwinds
- EUR/USD remains vulnerable near 1.0950 in European trading hours. Apart from the upbeat US Dollar, uncertainty over the Euro’s (EUR) outlook has also kept the pair on the backseat. The Euro’s outlook has become uncertain amid increasing speculation that the European Central Bank (ECB) could cut interest rates again in its monetary policy meeting on October 17.
- Large dovish ECB bets for October have been prompted by growing risks that inflation in the Eurozone could stabilize below the bank’s target of 2%. Annual Eurozone Harmonized Index of Consumer Prices (HICP) decelerated at a faster-than-expected pace to 1.8% in September, according to flash estimates.
- The economic outlook of Germany, the Eurozone’s largest economy, is weak due to soft demand. The German economy is forecasted to have shrunk by 0.2% annually for the current year by the ministry, led by Robert Habeck of the Green party, newspaper Sueddeutsche Zeitung reported on Sunday.
- Meanwhile, ECB policymaker and French Central Bank Chief François Villeroy de Galhau also emphasized the need to cut interest rates again this month, told to La Repubblica over the weekend. Villeroy said, “In the last two years our main risk was to overshoot our 2% target.” “Now we must also pay attention to the opposite risk, of undershooting our objective due to weak growth and a restrictive monetary policy for too long,” he added.
- On the economic data front, Eurozone Retail Sales expanded but missed expectations in August. Annually, Retail Sales rose by 0.8% after contracting by 0.1% in July. Economists expected Retail Sales to have grown by 1%. Month-on-month Retail Sales rose expectedly by 0.2%.
Technical Analysis: EUR/USD struggles near 1.0950
EUR/USD strives for a firm footing near the immediate support of 1.0950. The major currency pair is broadly under pressure as it has delivered a breakdown of the Double Top chart pattern formation on a daily timeframe. The above-mentioned chart pattern was triggered after the shared currency pair broke below the September 11 low of 1.1000.
The 14-day Relative Strength Index (RSI) slides below 40.00. A bearish momentum would trigger if the RSI sustains below the same.
Looking down, the pair is expected to find support near the 200-day Exponential Moving Average (EMA) around 1.0900. On the upside, the 20-day EMA at 1.1075 and the September high around 1.1200 will be major resistance zones.
Euro FAQs
The Euro is the currency for the 19 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.
