Euro steadies above 1.1650 ahead of US PCE data
- EUR/USD holds steady around 1.1675 in Wednesday’s early Asian session.
- US Treasury buybacks could weigh on the US Dollar; traders brace for the US PCE data for fresh impetus.
- US threatened severe sanctions against countries with economic ties to Iran.
The EUR/USD pair flatlines near 1.1675 during the early Asian trading hours on Wednesday. The US Treasury's decision to expand its long-term bond buyback program could weigh on the US Dollar (USD) against the Euro (EUR). Traders await the release of US Personal Consumption Expenditures (PCE) Price Index data, due late Wednesday.
US Treasury Secretary Scott Bessent said last week that the government could increase bond buybacks beyond $4 billion, a day after the department unveiled plans to double buybacks of longer-dated securities. CNBC reported earlier on Monday that Bessent could tap the department's near $1 trillion General Account to help fund bond buybacks, instead of issuing short-term bills.
"Lower bond yields at the long end won’t fix the debt problem. Longer term, it could make it worse. The government’s debt burden would become even more sensitive to changes in the Fed’s policy rate,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
However, escalating tensions in the Middle East could boost safe-haven flows, supporting the Greenback. The US threatened to impose severe sanctions against any country or entity maintaining economic ties with Iran. Meanwhile, Tehran vowed retaliation against any country that took part in the US-led isolation campaign.
Euro support underpinned by yield spreads but upside seen as limited
Strategists at Scotiabank note that the “recent recovery in yield spreads has provided fundamental support to the Euro,” helping to underpin EUR performance. However, they caution that they “see little scope for additional near-term strength as spot currently trades with a slight premium to our narrow fair value estimate at 1.1622,” suggesting the currency may struggle to extend gains meaningfully from current levels.
Technical Analysis: EUR/USD maintains a positive outlook amid overbought conditions
In the daily chart, EUR/USD holds a bullish near-term bias as spot remains above the 100-day simple moving average (SMA) and the Bollinger middle band. Price is edging toward the Bollinger upper band resistance, while the Relative Strength Index (14) around 70 signals overbought conditions that could temper immediate upside, even as the broader structure stays supported.
On the downside, initial support is located in the 1.1580/1.1575 area, where the Bollinger middle band and the 100-day SMA cluster to reinforce an underlying floor, ahead of a deeper structural level at the Bollinger lower band near 1.1456. On the topside, a clear break above the Bollinger upper band resistance at 1.1708 would reopen the path for further gains, though stretched momentum suggests that rallies toward this barrier may attract profit-taking.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.