- EUR/USD finds a bottom and rebounds after better-than-expected Eurozone manufacturing data.
- The pair had been selling off following positive US data.
- The data suggested that the Federal Reserve could delay cutting interest rates, which supported the USD.
- The ECB continues to target June as the first month to cut interest rates.
EUR/USD finds a bottom in the low 1.0700 zone and recovers after Tuesday's release of a better-than-expected final Eurozone manufacturing PMI estimate. The release of German inflation data, although lower than expected, did not affect the pair.
The German Harmonized Index of Consumer Prices slowed to 2.2% annually in March from 2.4% in February, below the expected 2.3%. Although the data reinforces the probability that the European Central Bank (ECB) will go ahead with the interest rate cuts planned for June, it failed to move the EUR/USD needle.
EUR/USD recovers after improvement in the Eurozone manufacturing sector
EUR/USD found a foothold after Eurozone HCOB Manufacturing PMI data showed an increase to 46.1 in the final estimate for March, when economists did not expect any change from the preliminary estimate of 45.7. That said, although it was higher than expected, it still does not surpass the 50 barrier, which distinguishes growth from contraction, unlike the US manufacturing PMIs, which exceeded 50 for the first time since 2022.
The pair had weakened over the Easter weekend after stronger US macroeconomic data and hawkish comments from Federal Reserve (Fed) Chair Jerome Powell supported the US Dollar (USD), making drop the probability that the United States Federal Reserve (Fed) will cut interest rates in June to close to 50%. Maintaining higher interest rates is good for the USD as it attracts more capital inflows.
In Europe, slowing growth and falling inflation are making rate-setters at the European Central Bank (ECB) less cautious about cutting interest rates to help stimulate growth. . This divergence of trajectories between both central banks is negative for the EUR/USD.
EUR/USD declines after US data
EUR/USD turns lower again and breaks above the key 1.0800 level over the Easter weekend as some firm US data suggests the Fed will have to delay cutting interest rates as Inflation is likely to remain stubbornly above target.
On Good Friday, the Fed's preferred inflation indicator, the February personal consumption expenditure (PCE) price index, stood at 2.8%, exactly as expected, although down from 2.9% in January. Price pressure remains high and is well above the 2.0% target set by the Fed.
US manufacturing data for Easter Monday was also generally quite positive: the March ISM Manufacturing PMI surpassed 50 points – the dividing line between expansion and contraction – from a previous level of 47.8. The result was much higher than expectations of a recovery in economic activity. The result far exceeded expectations, which pointed to a rise to 48.4 points. It was the first result denoting expansion in the US manufacturing sector since November 2022.
Meanwhile, the Euro came under pressure from another ECB member joining the chorus in favor of a rate cut in June. ECB Governing Council member and Austrian Central Bank Governor Robert Holzmann said the ECB could cut interest rates before the Fed, and as to when, “will largely depend on developments.” of wages and prices in June.”
Technical analysis: EUR/USD continues to push downwards
EUR/USD extends the dominant short-term downtrend started at the March 8 high. It is currently heading lower towards key support at the lows of the yearly high of 1.0694.
Euro vs. US Dollar: 4-hour chart
The pair is oversold according to the Relative Strength Index (RSI). This is a signal for sellers not to add more short positions to their positions. If the indicator breaks out of oversold (above 30), it will be a signal to close all short positions and open long ones. This could lead to a pullback, although the precedence of the downtrend suggests a final capitulation.
The February lows of 1.0694 and the yearly high are likely to present substantial support and a bounce from that level is likely to occur on the first test. A decisive break below, however, would usher in another period of weakness and target 1.0650.
A decisive breakout is characterized by a long descending red candle that cleanly breaks through the level and closes near its low, or three consecutive red candles that break through the level.
Frequently asked questions about the Euro
The Euro is the currency of the 20 countries of the European Union that belong to the Eurozone. It is the second most traded currency in the world, behind the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2% ).
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the euro zone. The ECB sets interest rates and manages monetary policy. The ECB's main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – tend to benefit the Euro and vice versa. The Governing Council of the ECB makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone's national banks and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are important econometric data for the Euro. If inflation rises more than expected, especially if it exceeds the ECB's 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their peers tend to benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
The publication of economic data measures the health of the economy and can influence the value of the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can 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 raise interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. The economic data for the four largest economies in the Eurozone (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the Eurozone economy.
Another important publication 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 during a given period. If a country produces highly sought-after exports, its currency will appreciate due to the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
