The EUR/USD pair is currently stabilized around the 1.1750 mark during the Asian session on Wednesday, showing signs of halting the previous day’s notable retracement from a peak not seen since late September. The overall market sentiment appears to favor bullish traders, indicating that the prevailing trend for the pair is likely to lean upward.
The US Dollar (USD) is struggling to maintain momentum following a bounce associated with the recent US Nonfarm Payrolls (NFP) report, which highlighted mixed job figures. The US Bureau of Labor Statistics (BLS) released data indicating that the economy added 64,000 jobs in November, surpassing the expected increase of 50,000 jobs despite a fall of 105,000 in October. Meanwhile, the unemployment rate has increased to 4.6%, up from 4.4% the previous month.
This mixed employment data has not significantly altered expectations surrounding dovish monetary policies from the Federal Reserve (Fed), which continue to weigh on the USD. Market participants are largely speculating on potential interest rate cuts from the central bank in the coming year. Concerns about a dovish leadership transition at the Fed have also contributed to the USD’s weakness, as discussions emerge regarding President Donald Trump’s potential candidates for the Fed chair position, which includes Fed Governor Christopher Waller.
In contrast, the Euro has been supported by a prevailing belief that the European Central Bank (ECB) is likely finished with cutting interest rates. Traders, however, are exercising caution, as many await the crucial ECB meeting scheduled for Thursday. The outcomes from this meeting, paired with upcoming US consumer inflation figures, are expected to significantly influence demand for the USD and could offer fresh momentum for the EUR/USD pair. Before these events, the final Eurozone CPI print will provide additional signals for traders.
The Euro itself serves as the currency for 20 countries within the Eurozone and stands as the second most traded currency globally, following the USD. In 2022, it accounted for a remarkable 31% of all foreign exchange transactions, with an average daily turnover exceeding $2.2 trillion. As the most actively traded currency pair, EUR/USD constitutes about 30% of all forex transactions.
The European Central Bank, based in Frankfurt, is responsible for setting interest rates and managing monetary policy within the Eurozone, with its primary focus on maintaining price stability. The ECB’s decisions can have a direct impact on the Euro’s strength, especially when compared to other currencies. As inflation data, measured by the Harmonized Index of Consumer Prices (HICP), becomes available, market participants keenly monitor it, particularly when it relates to the ECB’s inflation target of 2%.
Moreover, economic health indicators such as GDP growth, Manufacturing and Services PMIs, and consumer sentiment surveys play crucial roles in shaping the Euro’s trajectory. Strong data generally contributes to a rising Euro, as it often attracts foreign investment and may prompt the ECB to consider raising interest rates. Conversely, weak economic data could lead to a decline in the Euro’s value.
Additionally, the Trade Balance serves as a significant indicator for the Euro, reflecting the difference between export earnings and import expenditures. A strong export market can enhance a currency’s value due to increased foreign demand, whereas a negative trade balance could exert downward pressure on the Euro. Economic performance data from the Eurozone’s largest economies, including Germany, France, Italy, and Spain—accounting for 75% of the region’s overall economic output—continues to be of great significance in these assessments.
