EUR/USD extends losses amid weak Eurozone economic sentiment figures
- EUR/USD tests fresh lows below 1.1830 in a downtrend from 1.1925 highs last week.
- German and Eurozone Economic Sentiment Index deteriorated against expectations in February.
- The US Dollar shows a mild upside bias ahead of key US data due later in the week.
The Euro (EUR) has reversed previous gains against the US Dollar (USD) and is trading lower for the second consecutive day on Tuesday. Price action is hovering right above one-week lows in the area of 1.1830 at the time of writing, with bearish pressure building up amid the release of a disappointing ZEW Economic Sentiment Survey.
Institutional investors’ sentiment about the German economy deteriorated to 58.3 in February from 59.6 in January, below market expectations of an improvement to 65.0, according to data from the ZEW survey released on Tuesday. The confidence about the current economic situation improved to -65.9 from -72.7 in January, but it fell short of the -65.7 market consensus.
Likewise, the Eurozone’s Economic Sentiment Index fell to 39.4 in February, from 40.8, instead of improving to 45.2 as markets had anticipated.
Earlier on the day, the German Harmonised Index of Consumer Prices (HICP) confirmed that inflation contracted 0.1% in January, while year-on-year, consumer prices accelerated to 2.1% from the 2.0% growth seen in December. These figures keep the speculation about further European Central Bank monetary easing alive, and add bearish pressure on the Euro.
The Greenback, on the other hand, maintains a mild bullish tone this week with trade volumes thin as US markets return from a long weekend. Later on Tuesday, the New York Empire State Manufacturing Index might provide some guidance to the USD. Investors, however, might keep a wait-and-see stance ahead of the release of the minutes of the latest Federal Reserve (Fed) meeting, due on Wednesday, and Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) inflation figures, on Friday.
Technical Analysis: EUR/USD has broken trendline support
The EUR/USD broke the trendline support from mid-January lows on Monday and is now testing the bottom of last week's trading range, in the 1.1830 area. Indicators in the 4-hour chart are pointing downwards. The Moving Average Convergence Divergence (MACD) holds in negative territory, while the Relative Strength Index (RSI) has declined below 40, hinting at a growing bearish momentum.
A clear break of the mentioned 1.1830 area (February 11 lows) would provide additional confidence for bears to retest early February lows at the 1.1775 area. On the upside, bulls should push the pair back above the broken trendline, now at 1.1870 and Friday's high in the 1.1890 area, to ease negative pressure and shift the focus back towards the February 9,10 and 11 top, around 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.