Market Data 
- EUR/USD finds temporary support near 1.0900 as the Euro outperforms its major peers.
- The Euro gains despite firm ECB dovish bets amid a faster-than-expected decline in Eurozone inflationary pressures.
- Investors await the US PPI for fresh cues on the Fed’s interest rate outlook.
EUR/USD moves slightly higher to near 1.0950 on Friday after a sharp recovery from the two-month low of 1.0900 recorded on Thursday. The pullback move in the major currency pair could be short-lived as the US Dollar (USD) clings to gains ahead of the United States (US) Producer Price Index (PPI) data, which will be published at 12:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near 103.00.
Investors will pay close attention to the US PPI data as it will indicate the pace at which prices of goods and services were raised by producers at factory gates in September. Producer inflation is majorly influenced by the change in input cost and households’ demand.
Economists expect the annual headline PPI inflation to have decelerated to 1.6% from 1.7% in August. The annual core PPI – which strips off volatile food and energy prices – is estimated to have accelerated sharply by 2.7% from the former release of 2.4%. The monthly headline and core PPI are expected to have grown at a slower pace of 0.1% and 0.2%, respectively.
The US Dollar is broadly upbeat as Atlanta Federal Reserve (Fed) Bank President Raphael Bostic has brought the option of leaving interest rates unchanged at 4.75%-5.00% in November on the table.
The comments from Bostic in an interview with the Wall Street Journal on Thursday indicated that he is comfortable with skipping the interest rate cut next month. Bostic said, “This choppiness to me is along the lines of maybe we should take a pause in November and I’m definitely open to that.” His comments came after the release of the US Consumer Price Index (CPI) report, which showed that inflationary pressures rose at a faster-than-expected pace in September.
Daily digest market movers: EUR/USD rises slightly as Euro gains
- EUR/USD edges higher to near 1.0950 in Friday’s European session. The major currency pair moves slightly higher as the Euro (EUR) performs strongly against its major peers despite firm expectations that the European Central Bank (ECB) will cut interest rates further in both monetary policy meetings remaining this year.
- The ECB has already reduced its Deposit Facility Rate by 50 basis points (bps) to 3.5% this year. The central bank is expected to cut them further by 50 bps again in the remaining year. Traders have priced in two rate cuts of 25 bps, one of which will come next week and the second in December.
- ECB dovish bets have been accelerated by a faster-than-expected decline in Eurozone inflationary pressures and growing risks to economic growth. This week, ECB policymaker and Governor of the Greek Central Bank Yannis Stournaras said that price pressures are declining faster than the ECB forecasted in September. Stournaras also backed two more rate cuts in each of the remaining meetings this year, emphasizing the need to reduce them further in 2025.
- Meanwhile, revised estimates for the German Harmonized Index of Consumer Prices (HICP) for September have shown that price pressures remained below the bank’s target of 2% at 1.8%, as shown in flash estimates.
- On the economic front, the growth prospects of the Eurozone are vulnerable as its largest nation, Germany is forecasted to close the year with a decline in output by 0.2%, the German economic ministry said.
Technical Analysis: EUR/USD finds cushion near 200-day EMA
EUR/USD finds temporary support near the 200-day Exponential Moving Average (EMA) around 1.0900. The near-term outlook of the pair remains uncertain as the 20- and 50-day EMAs are on course to deliver a bear cross near 1.1020.
The shared currency pair weakened after delivering a breakdown of a 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) settles inside the bearish range of 20.00-40.00, suggesting more weakness ahead.
Looking down, the pair is expected to find support near the round-level support of 1.0800 if it decisively breaks below the 200-day EMA around 1.0900. On the upside, the September 11 low of 1.1000 and the 20-day EMA at 1.1090 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.
