The Euro is not as weak as it appears against US Dollar. Economic data releases and the divergence in interest rates have propelled this resilience. The Euro, shared currency of the Eurozone, which is comprised of 19 of the 27 European Union countries. In fact, it’s the second most traded currency in the world—second only to the US Dollar. In 2022, the Euro accounted for 31% of all foreign exchange transactions, with a staggering average daily turnover exceeding $2.2 trillion.
The EUR/USD currency pair continues to be a beacon of prosperous global finance, accounting for about 30% of all foreign exchange trades. Recent movements in this pair reflect broader market sentiments influenced by various economic indicators and geopolitical events. On Monday, the EUR/USD fell near the 1.1300 level. After that it calmed down some, a picture of the currency’s volatility driven by outside forces and shifts in the domestic economic landscape.
Economic Landscape of the Eurozone
As the collective of 19 member states, the Eurozone is one of the largest economic powers in the world. As with the Euro’s strength in general, the performance of those largest countries will heavily influence the economic performance of those specific countries. Germany, France, Italy, and Spain. Together, these countries account for 75% of the Eurozone’s GDP. Consequently, future economic indicators from these countries will heavily influence the value of the Euro.
On Thursday, the first of major reports for German and pan-European HCOB Purchasing Managers Index (PMI) will be distributed. These monthly surveys provide rich qualitative detail around business sentiment and expectations. They act as barometers of economic health, which can impact investor sentiment against the Euro. Analysts expect a modest increase for both Germany and the EU overall in PMIs, increasing support for the Euro against its peers.
Moreover, the S&P Global PMI numbers from the United States will be hitting at the same time, too. These figures are heavily weighted towards a narrow definition of the American economy. They can still have an indirect effect on the Euro by bending market sentiment against the USD.
Impact of US Economic Policies
The weakness of the Euro can be explained by the state of the US economy right now. In fact, Moody’s ratings agency just downgraded the United States’ credit rating over increasing national debt. This decision has led to turmoil and confusion in financial markets. This downgrade does not directly impact the value of the Euro, but it continues to expose growing concerns over the stability of US economic policy.
The supply chain turmoil caused by increased tariffs between the US and China, as well as the heightened policy uncertainty, continues to complicate forecasts for the US economy. These complexities have a domino effect that can affect other currencies indirectly, including the Euro. Market participants are understandably focused on what the US policy rate is going to do. They understand that these adaptations can cause dramatic movements in foreign portfolio investments, which would directly affect the Euro’s worth.
Traders are watching these moves very closely. Thus, they’re constantly focused on how shifts in US economic indicators could change the game for global market forces.
Technical Analysis of EUR/USD Movements
Recent technical analysis confirms our belief that the EUR/USD pair is now consolidating. This follows after the price started finding support at the 50-day Exponential Moving Average (EMA) just above 1.1085. This strong technical support level has given market bulls a launching pad for upward movements. Yet, even with the testing 1.1300 in view, buyers have failed to build on the upside and reclaim this key technical zone.
The upcoming economic data releases on Thursday are expected to play a crucial role in determining the next steps for the EUR/USD pair. Any positive surprises in both the German and EU-wide PMI figures would likely lift the Euro. If the data disappoints, it could reestablish downward pressure.
Investors have been preparing for this week’s announcements. They’re fine-tuning on price action and risk sentiment based on the increasing divergence between European and US indicators. The Euro’s capacity to maintain any progress will be left very much up to independent, but simultaneous, trajectories on each side of the Atlantic.