EUR/USD edges lower in a calm start to the week
- EUR/USD nudges lower, nearing 1.1850 with markets at half-throttle.
- Eurozone Industrial Production declined in December, in line with expectations.
- Soft US CPI data seen on Friday are acting as headwinds for the USD recovery.
The Euro (EUR) has resumed the last few days' bearish trend against the US Dollar (USD) on Monday and is retreating towards the 1.1850 level ahead of the US session opening. Eurozone factory output data confirmed expectations of a sharp decline in December, but the subdued trading activity is keeping within the previous days' range.
Data released on Monday revealed that the Eurozone's Industrial Production contracted 1.4% in December, and November's reading was revised down to a 0.3% growth, from the 0.7% previously estimated. Year-on-year, production slowed down to a 1.2% growth rate, beyond the 1.3% expected by the market. In November, production grew 2.2%from the same month last year.
The pair has been trading within the last few days' range. The common currency failed to draw any significant support on Friday, after the release of softer-than-expected US Consumer Price Index (CPI) figures, which allowed the Federal Reserve (Fed) to ease borrowing costs further, to boost a stalled labour market.
Trading activity remains subdued on Monday. Most Asian markets, including Japan, have been closed by the Lunar New Year holiday, and US markets will also be closed on the President's Day holiday. Later on the day, the speeches from the Federal Reserve's (Fed) Vice Chair of Supervision, Michelle Bowman, and the European Central Bank's Governor, Joachim Nagel, might provide some distraction in a calm market session, ahead of a busy data week.
Technical Analysis: Testing trendline support at the 1.1855 area
The 4-hour chart shows the EUR/USD hovering testing support at the rising trendline from mid-January lows now at 1.1855, which, together with the February 11 low, at 1.1833, is holding bears for now.
Indicators are increasingly negative. The Moving Average Convergence Divergence (MACD) sits fractionally below the zero line, and the Relative Strength Index (RSI) is trending lower below 50, reflecting a weakening momentum.
Below the mentioned 1.1833, the next target is the early February lows at the 1.1775 area. On the upside, the 38.2% Fibonacci retracement of the late January reversal is holding bulls for now at 1.1890, and closing the path towards last week's highs at 1.1925.
(The technical analysis of this story was written with the help of an AI tool.)
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.