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Mexican Peso hits 7-day high on weak USD ahead of NFP data
400690 July 5, 2024 09:33 FXStreet Market News
- Mexican Peso registers gains third consecutive day, trading below 18.10 against the US Dollar.
- Weaker US economic data, including disappointing ADP Employment Change and rising unemployment claims, weigh on the Greenback.
- Bank of Mexico Deputy Governor Jonathan Heath echoes Fed’s cautious stance on rate cuts, supporting the Peso.
The Mexican Peso extended its gains for the third straight day on Thursday after evidence that the US economy is slowing down weakened the Greenback. This ignited speculation that the Federal Reserve could begin its easing cycle this year, as some Fed officials commented that the dual mandate risks are more balanced. At the time of writing, the USD/MXN trades at 18.08, down 0.36%.
Mexico’s economic docket is light, yet the Peso was boosted by Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who wrote in an X post on Wednesday that he “agree[s] with Jerome Powell. More benign inflation data is needed before cutting rates. He said it for the Federal Reserve, but the same applies to the case of Mexico.”
Aside from this, US data on Wednesday disappointed investors. ADP Employment Change figures for June missed the mark and trailed May’s data, while the number of Americans filing unemployment claims rose, exceeding estimates and the previous week’s data. This accentuated fears that the labor market is weakening, increasing the odds of a rate cut by the Federal Reserve.
Further data showed signs that the US economy is slowing as the ISM Services PMI plunged after hitting its highest level since August 2023, dived into contractionary territory,
Therefore, US Treasury yields tumbled, undermining the Greenback, which stands at 105.12 and is about to crack the 105.00 mark.
According to the CME FedWatch Tool, odds for a September 2024 cut lie at 66%, higher than a day ago’s 63% chances.
Daily digest market movers: Mexican Peso rises further on US Dollar weakness
- Banxico’s survey showed that economists estimate the Gross Domestic Product (GDP) to end at 2%, down from 2.1%. They expect Banxico to cut rates from 11.00% to 10.25%, up from 10.00% projected in May.
- On Monday, Banxico Governor Victoria Rodriguez Ceja was dovish, as she said the evolution of disinflation can “allow us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”
- Fed Chair Powell said the US economy made significant progress on inflation while adding that the risks of the Fed’s dual mandate are more balanced.
- US jobs data witnessed ADP Employment Change in June, creating 150K jobs, missing the estimated 160K and the prior month 157K; while Initial Jobless Claims for the week ending June 29 was 238K, exceeding estimates of 235K, and the previous reading of 234K.
- June’s ISM Services PMI plummeted to recessionary territory, from 53.8 to 48.8, the fastest pace in four years and its weakest since May 2020.
Technical analysis: Mexican Peso surges sharply as USD/MXN slumps below 18.10
The USD/MXN extended its losses to three consecutive days, with the pair clearing the next psychological support at 18.10, which exacerbated a test of the 18.05 figure earlier during the day. Momentum hints that buyers lost steam as depicted by the Relatives Strength Index (RSI), which points downwards about to pierce the 50-neutral line despite remaining bullish.
If USD/MXN drops further, the next target is the psychological level of 18.00. Breaking below this level would expose the next support at the December 5 high, which turned support at 17.56. Further decline aims for the 50-day Simple Moving Average (SMA) at 17.37.
Conversely, if buyers push the spot price above 18.50, it could rally toward the June 28 high of 18.59, potentially extending gains to challenge the year-to-date high 18.99.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
USD/CAD remains under selling pressure near 1.3600 ahead of US/Canadian employment data
400689 July 5, 2024 09:29 FXStreet Market News
- USD/CAD trades in negative territory for the fourth consecutive day near 1.3605 in Friday’s early Asian session.
- The recent discouraging US economic data have fuelled the chance of a Fed September rate cut, weighing the US Dollar.
- Canadian Net Change in Employment is expected to decline to 22.5K versus 26.7K prior.
The USD/CAD pair trades on a negative note around 1.3605 during the early Asian session on Friday. The downtick of the pair is backed by the weaker US Dollar (USD) boardly. The release of US and Canadian employment reports will be the highlights on Friday.
Market consensus forecasts the US employment growth slowed in June, with a 190,000 increase in Nonfarm Payrolls (NFP). The Unemployment Rate is expected to remain steady at 4.0%, partially due to a forecast decline in the participation rate last month.
The recent softer US PCE inflation and weaker Services PMI have raised the chance of a Federal Reserve (Fed) September rate cut, with the markets pricing a 70% odds leading into the NFP release of that occurring. The markets also see a second rate cut in December, which is priced in around an 80% probability. This, in turn, exerts some selling pressure on the Greenback.
On the Loonie front, the Canadian Net Change in Employment is expected to drop to 22.5K from the previous reading of 26.7K. The Canadian Unemployment Rate is projected to tick higher to 6.3% from 6.2%. Meanwhile, the modest decline in crude oil price might weigh on the commodity-linked Canadian Dollar (CAD), as Canada is the major crude oil exporter to the United States.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
PBOC sets USD/CNY reference rate at 7.1289 vs. 7.1305 previous
400688 July 5, 2024 09:21 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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General Market Analysis 05/07/2024
400687 July 5, 2024 09:12 ICMarkets Market News
Quiet Day with US Markets Closed
It was a relatively quiet trading day yesterday with US markets closed and major risk events all behaving themselves, most financial products remained in tight ranges. Global stocks continued to perform well after Wednesday’s weaker US data prints and the UK election looks like coming in with the predicted Labour party landslide victory. Both the pound and the Yen traded in quiet ranges in light of the election result and a generally lower dollar whilst Oil edged higher, Brent adding 0.2% to trade up to $87.55 and WTI climbing 0.21% to close at $84.06 a barrel. Gold held on to its recent gains and is trading at $2,358 on the Asian open.
US Non-Farms in Focus for Dollar Traders Today
It has been a strange week for traders this week with the July 4th US holiday crammed in the middle of the week’s trading sessions. FX traders will be on their toes once the New York market opens with the Non-Farms likely to inject some volatility into what have been relatively tight rangebound pairs for the last few sessions. We have seen a similar pattern in FX with regard to the data preceding last month’s US jobs numbers with the dollar on the back foot for most of the week as US numbers have come in slightly weaker. Last month we saw the Dxy drop from 104.60 to 104.00 in the days ahead of the NFP’s before a surprise higher print sent it swiftly up to 104.95 on the day and led to a rally above 106 in the following weeks. Traders are conscious that we could see a similar reaction if the headline data prints significantly above the expected 191k monthly increase.
US Employment Data to Move Markets Later Today
It is set to be a quiet start to the trading day in Asia today with markets having traded in tight ranges for the last few sessions and little out on the event calendar to inspire more volatility. The European session also just has lower tier data releases scheduled and the UK elections look to have passed with little off expectation. However, things are likely to change swiftly on the New York open as traders return after their July 4th holiday and tackle the key US employment numbers. The headline Non-Farms Employment Change is predicted to come in around the +191k level with Average Hourly Earnings at +0.3% and the Unemployment Rate remaining steady at 4%.
The post General Market Analysis 05/07/2024 first appeared on IC Markets | Official Blog.
Is the party over for meme coins?
400685 July 5, 2024 08:57 FXStreet Market News
- Meme coins have lost about 30% of their value in the past month following bearish sentiment from potential Bitcoin headwinds.
- WIF is down more than 61% from its recent all-time high of March 31.
- Crypto market may have passed euphoria level as celebrity meme token launches soak up liquidity from top meme coin projects.
According to Santiment’s data on Thursday, meme coins have experienced steep declines in the past few weeks, following speculation that the crypto market has passed its euphoria phase.
Meme coins erase three-month gains
The crypto market has sustained increased bearish pressure in the past week following the German government’s offloading of its seized BTC. The potential supply shock from Mt. Gox BTC creditors’ repayment has also had telling effects on the market, with meme coins taking a major hit.
In the monthly time frame, all the top meme coins except BRETT and MOG have lost more than 30% of their value. The Santiment chart below shows that these coins are on track to erase gains spanning the meme coin frenzy from March into May.
Meme coins price perfomance
Dogwifhat (WIF), which led the Solana meme coin frenzy earlier in the year, is down more than 61% from its March 31 all-time high of $4.83. The number one meme coin, DOGE, has decreased more than 50% from its yearly high of $0.2202. Shiba Inu, the next biggest meme token, is also down 57% from its yearly high.
As the meme coin bloodbath continues, most in-the-money investors are contemplating whether to take profits, while out-of-the-money investors are considering cutting their losses as hopes for a bullish reversal dim.
IntoTheBlock’s data shows more than 70% of DOGE, PEPE, and FLOKI traders are still in profit despite the recent decline.
Meanwhile, crypto analyst @Ali_charts suggested that the bull cycle may be over as the market may have already hit the euphoria phase and is now reaching a stage of complacency. Some other traders also share the same sentiment, advising investors to book profits or cut their losses before a further decline.
If this is true, then meme coins could be set for more decline.
The reduced growth of top meme coins can also be traced to the popularity of Solana’s token generation platform, Pump.fun. Most traders may have rotated capital from top meme coins into the plethora of celebrity meme coin launches that hit the market in the past few weeks.
On a lighter note, the recent decline in meme coins may be considered a normal move due to their high volatility. During market growth or downturns, meme coins are usually the most affected, often rising or declining in multiples of the general market’s movement.
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USD/JPY holds positive ground above 161.00, all eyes on US NFP data
400683 July 5, 2024 08:33 FXStreet Market News
- USD/JPY trades on a stronger note near 161.40 in Friday’s early Asian session.
- The divergence of monetary policy between Japan and the US continues to undermine the JPY.
- The rising expectation of Fed rate cuts this year and the fear of FX intervention might cap the pair’s upside.
The USD/JPY pair remains strong near 161.40 on Friday during the early Asian session. The US Dollar (USD) continues to strengthen to nearly fresh 38-year highs against the Japanese Yen (JPY) amid the wide rate differential between Japan and the US. Later on Friday, traders will closely watch the US June employment data, including Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings.
The uptick in USD/JPY raises expectations of foreign exchange (FX) intervention from Japanese authorities. “In the interim, USD/JPY will look to UST yields, US Dollar (USD) for directional cues. For USD/JPY to turn lower, that would require the USD to turn/Fed to cut or for BoJ to signal an intent to normalize urgently (rate hike or increase pace of balance sheet reduction). None of the above appears to be taking place,” said OCBC strategists Frances Cheung and Christopher Wong.
According to the Federal Open Market Committee (FOMC) meeting on June 11–12, Federal Reserve (Fed) officials emphasized the data-dependent approach and refrained from committing to interest rate cuts until further observation. Some Fed officials lacked the confidence they needed to cut the interest rate, while several policymakers stated that it’s necessary to hike again if inflation were to rebound.
Nonetheless, the upside of the Greenback might be capped as the recent softer US PCE inflation data and weaker-than-expected Services PMI fuel expectations of Fed interest rate cuts this year. Traders will take more cues from the US employment data for June later in the day. The US NFP is estimated to show 190K job additions in June, while the Unemployment Rate is forecast to remain unchanged at 4%. Finally, the Average Hourly Earnings are forecast to drop to 3.9% YoY in June from 4.1% in May.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Julius Baer like further upside in Japanese equities
400682 July 5, 2024 08:06 Forexlive Latest News Market News
The broad TOPIX index of Japanese stocks hit a record high on Thursday, finally surpassing the high set in December of 1989.
Comments via an analyst at Swiss private bank Julius Baer, in summary indicate further upside ahead, citing:
- corporate reforms
- currency and flows
- pay hikes
- earnings revisions
- geopolitics
- large market caps
are adding to the positive outlook for Japanese shares.
—
ps The TOPIX is climbing again today.
***
TOPIX is the Tokyo Price Index
- covers all domestic companies listed in the First Section of the Tokyo Stock Exchange (TSE)
- designed to track the overall trend of the Japanese stock market
- includes over 2,000 companies
- a free-float adjusted market capitalization-weighted index (only shares available for trading are considered in its calculations)
TOPIX daily candles
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Ethereum breaches key support, sparks $90 million in long liquidations
400679 July 5, 2024 08:02 FXStreet Market News
- SEC delays decision on Ethereum ETF S-1 drafts as analysts shifted their potential launch date again.
- Ethereum whale risks liquidation if ETH declines to $2,984.
- Ethereum breaches key support amid key insight from CME open interest.
Ethereum is down more than 5% on Thursday following the Securities & Exchange Commission’s (SEC) failure to approve ETH ETF issuers’ S-1 drafts. Meanwhile, the recent decline has strengthened the bearish outlook after ETH moved below a key support level, sparking $90 million in long liquidations.
Daily digest market movers: SEC yet to approve ETH ETF
Despite its light comments on issuers’ S-1 drafts, the SEC has yet to approve spot ETH ETFs following the US Independence Day holiday. As a result, Bloomberg analyst James Seyffart shifted his over/under date for a potential approval to next weekend.
The SEC approved spot ETH ETF issuers’ 19b-4 filings in May, but also need to sign off on their S-1s before the products go live.
Nate Geraci, President of ETF Store, noted that the SEC expects issuers to amend their S-1s by July 8, with another round of filings potentially due around July 12. This “would theoretically mean launch week of July 15” for spot ETH ETFs, wrote Geraci in an X post.
Meanwhile, following the recent market decline, a whale who longed ETH via the Compound protocol is about to be liquidated, according to data from Lookonchain. The whale deposited 12,734 ETH worth $40 million to Compound and borrowed $31.4 million worth of dollar-denominated stablecoins with a health rate of 1.06. The whale risks liquidation if the price of ETH drops to $2,984.
ETH technical analysis: Ethereum bears lead market amid slight bullish sentiment from US investors
Ethereum is trading around $3,132 on Thursday, down more than 5% on the day. The decline wiped out more than $90.81 million worth of long positions from the market, bringing the total ETH liquidations to $102.48 million in the past 24 hours.
ETH has now breached the $3,203 key support level, strengthening its bearish outlook. With the move, ETH has fully balanced the market inefficiency from itsprice spike following news of the SEC’s U-turn on spot ETH ETFs.
ETH/USDT 4-hour chart
ETH may test the $3,029 support level in the next few hours. A bounce from this level will cool the bearish momentum. However, a move below it may see ETH seeking support around the $2,852 price level.
In the past 24 hours, Ethereum’s futures open interest (OI) across top exchanges declined by almost 5%. Open interest is the number of outstanding contracts in a derivatives market that are yet to be settled.
While the move signified wider risk aversion from traders, Ethereum’s CME OI was an outlier, rising almost 1% in the last 24 hours. This indicates that US investors may be slightly bullish despite declining prices due to expectations of spot ETH ETFs’ launch.
Another key insight is that spot ETH ETFs may experience impressive flows using the rising ETH CME OI as a proxy to measure investors’ sentiment. As a result, ETH may take bears by surprise and rally past its yearly high, invalidating the bearish thesis.
Cryptocurrency prices FAQs
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EUR/USD holds steady with US NFP, EU Retail Sales in the barrel
400676 July 5, 2024 07:56 FXStreet Market News
- EUR/USD is grasping bids on the high side ahead of a packed Friday.
- Euro bulls are shrugging off a miss in German factory activity.
- EU Retail Sales, US NFP loom large to cap off the trading week.
EUR/USD has chalked in a sixth consecutive trading day in green as Friday’s economic data docket looms large ahead. European Retail Sales and the latest round of US Nonfarm Payrolls (NFP) jobs data could see a significant amount of chart churn. US markets will be returning to the fold after taking Thursday off for the US Independence Day holiday, and market activity is set to tick back up noticeably during Friday’s US trading window.
Forex Today: The US Payrolls takes center stage
German Factory Orders missed the mark on Thursday, declining -1.6% MoM in May versus the previous -0.2%, and entirely missing the forecast 0.5% upswing. Despite softer European figures, a broad-market softening of the US Dollar helped to keep Fiber bolstered into near-term highs just north of 1.0800.
Pan-EU Retail Sales will be releasing early Friday. MoM Retail Sales are expected to rebound to 0.2% in May compared to the previous -0.5% contraction, while annualized Retail Sales are forecast to tick up to 0.1% YoY from the previous 0.0%.
US NFP figures are expected to tick down to 190K in June, down from the previous month’s 272K. Markets will also be on the lookout for steep revisions to previous releases, while June’s US Unemployment rate is expected to hold steady at 4.0% MoM.
US Average Hourly Earnings are expected to cool slightly in June, forecast to ease to 3.9% YoY compared to the previous annualized period’s 4.1%.
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
EUR/USD technical outlook
Fiber has extended a near-term bullish bounce from a demand zone priced in below 1.0680, and is testing chart territory just north of the 1.0800 handle. Despite a recent bullish tilt, EUR/USD continues to churn in the middle of a rough descending channel on daily candlesticks.
Fiber is poised to run out of bullish gas as bids extend past the 200-day Exponential Moving Average (EMA) at 1.0793. A firm push further into bull country will leave the Fiber poised for a challenge of descending technical resistance and the last major swing high into the 1.0900 handle.
EUR/USD hourly chart
EUR/USD daily chart
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.
Japan Monetary Base (YoY): 0.6% (June) vs previous 0.9%
400675 July 5, 2024 07:56 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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