Forex News
- The oil price corrects further to near $96.60 as Middle East ceasefire hopes intensify.
- Iran is ready to end the war if the US guarantees no repetitive aggression.
- The UAE calls for forced Hormuz reopening, ready to join the US and allies.
West Texas Intermediate (WTI), futures on NYMEX, is down 0.8% to near $96.60 in the early European trade on Wednesday. The oil price extends its correction from the three-week high of 103.33 posted on Tuesday on hopes of a ceasefire in the Middle East war.
The expectation of peace in the Middle East has intensified, following comments from both the United States (US) and Iran that they are ready to end the war.
According to the Iranian state news agency, Iran’s President Masoud Pezeshkian told European Union (EU) Council President António Costa on Tuesday that his country is ready to end the war with the US, but it needs certain guarantees of no repetitive aggression. This is the first time that Iran has discussed peace in the Middle East and not extending attacks on Gulf nations.
Meanwhile, the oil price retracement could prove to be short-lived as the Strait of Hormuz, a passage to almost 20% of global energy supply, is expected to remain covered under Iran’s military influence.
Earlier in the day, the United Arab Emirates (UAE) expressed willingness to join the US and other allies in the forceful reopening of the Hormuz, the Wall Street Journal (WSJ) reported.
WTI technical analysis
WTI US Oil trades lower at around $96.60 as of writing. However, the near-term bias remains bullish, with price holding well above the rising 20-day Exponential Moving Average (EMA) near $90.70, which underpins the broader uptrend from the mid-$60s. Recent dips toward the low $90s attracted buyers, preserving a pattern of higher lows and keeping the advance from $84 intact.
The RSI at 61 signals firm positive momentum rather than exhaustion, indicating that buyers retain control despite the recent pullback from the $101.97 peak.
Initial resistance emerges at $100.00, followed by the recent top at $103.41. A sustained break above the latter would open the way toward the mid-$100s and extend the current bullish phase. On the downside, immediate support is seen at $93.00–$94.00, where recent lows cluster above the 20-day EMA and prior consolidation. A deeper setback would expose the dynamic support of the 20-day EMA around $90.70, and a daily close below this area would weaken the bullish bias and point to a broader corrective phase toward the high-$80s.
(The technical analysis of this story was written with the help of an AI tool.)
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Commerzbank’s Volkmar Baur argues that fears over an end to the petrodollar do not automatically imply a loss of the US Dollar’s reserve status. He notes Gulf oil’s declining share in global exports, the stagnation of Oil volumes, and the rising dominance of semiconductor trade, with Taiwan’s USD‑invoiced chip exports and Treasury holdings now rivaling Gulf petrodollar flows.
From Gulf oil to Taiwan chips
"The genius of the petrodollar agreement for the US was that everyone needs oil. And by striking the agreement with Saudi Arabia, then the world’s largest oil producer, the US set the global standard. A currency must have three characteristics: it must serve as a medium of exchange for goods, it must serve as a store of value, and it must serve as a unit of account."
"By having oil traded globally in US dollars, all three of these characteristics were cemented for the US dollar on the international stage. Everyone in the world had to buy oil, use the US dollar as a medium of exchange to do so, know how much oil currently costs in US dollars, and the Gulf states stored that value in US dollars in US Treasury bonds."
"So does a possible end to the petrodollar mean the end of the US dollar as the world’s reserve currency? I have my doubts."
"First, the Gulf region is no longer as important to global oil trade as it once was. While around 55% of all global oil exports came from the Gulf region in 1980, by 2024 that figure had dropped to less than 35%. The US itself had already surpassed Saudi Arabia as the world’s largest exporter by 2020."
"However, if we look at volume, global oil exports peaked as early as 2016 and have at best stagnated since then."
"In 2020 and 2021, when oil demand was low due to the pandemic, more integrated circuits- i.e., computer chips - were exported globally in US dollar terms than crude oil. A rising oil price did change this again in 2022 and 2023."
"For the US dollar, it is therefore now more important that computer chips are traded in US dollars than that oil from the Gulf region is traded in USD."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Asian equities rise due to improved global sentiment and a strong Wall Street rally.
- Trump signaled US exit from the Iran war soon, with withdrawal possible within two to three weeks
- South Korea’s Kospi’s surge is supported by a stronger earnings outlook for export-driven market.
Asian equities rise as improved global sentiment boosted regional markets following a strong rally on Wall Street overnight. Risk appetite improves on rising hopes for Middle East peace resolution. At the time of writing, Japan’s Nikkei 225 is trading 4.48% higher near 53,350, while Hong Kong’s Hang Seng Index is up over 2% to 25,300, China’s SSE Composite Index gains 1.41% to 3,950, and South Korea’s Kospi gains over 8% to near 5,460.
US President Donald Trump indicated that the United States (US) would be “leaving very soon” from the Iran war, noting that a withdrawal could take place within two to three weeks. Trump further emphasized that a formal agreement with Tehran is not a necessary condition for ending hostilities. Iranian President Masoud Pezeshkian expressed a willingness to de-escalate regional tensions if specific guarantees are met.
Japan’s Tankan Large Manufacturing Index rose for a fourth consecutive quarter to 17 in Q1 2026 from a revised 16, beating expectations and supporting the Bank of Japan’s (BoJ) stance of gradual rate hikes, potentially capping gains in Japanese equities.
In Hong Kong, all major sectors contributed to the rally, led by property, financials, and consumer stocks. However, gains could be partly limited after private survey data showed China’s RatingDog Manufacturing Purchasing Managers’ Index (PMI) eased to 50.8 in March from 52.1 in February, missing expectations of 51.6, amid rising energy costs.
South Korea’s Kospi surged on easing geopolitical tensions, with the rally further underpinned by strong external fundamentals. Exports jumped 48.3% year-over-year (YoY) to a record $86.1 billion in March, driven by robust semiconductor shipments, boosting confidence in the earnings outlook for the export-driven market.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
- AUD/USD rises further to near 0.6910 as de-escalation in the Middle East war has boosted investors’ risk appetite.
- Both the US and Iran have signaled readiness to end the Middle East war.
- Investors await the US ADP Employment data for fresh cues on the interest rate outlook.
The AUD/USD pair gives back some of its early gains, but still trades 0.12% higher to near 0.6910 during the late Asian trading session on Wednesday. The Aussie pair extends Tuesday’s recovery move, as hopes of a ceasefire in the Middle East have strengthened after comments from both the United States (US) and Iran signaling willingness to end the war.
The expectation of an end to the month-long Middle East war has improved the demand of riskier assets. As of writing, S&P 500 futures trade 0.33% higher even after surging almost 3% on Tuesday, reflecting a significant improvement in investors; risk appetite.
Meanwhile, the US Dollar (USD) extends its corrective move as its safe-haven demand has diminished amid de-escalating Middle East tensions. During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 99.75.
Going forward, investors will focus on the US ADP Employment Change and the Manufacturing PMI data for March, which will be published in the North American session. Investors will pay close attention to the private employment data to get fresh cues on the US interest rate outlook.
AUD/USD technical analysis
AUD/USD trades higher at around 0.6910 at the press time. However, the near-term bias is mildly bearish as the pair now holds below the 20-day Exponential Moving Average (EMA), which has started to roll over after capping recent rebounds near the 0.70 area. Price has transitioned from trading above this average to respecting it as dynamic resistance, underscoring a loss of upside momentum from the mid-0.71 region.
The recovery move by the 14-day Relative Strength Index (RSI) above 40.00 after sliding below that level signals the presence of buying interest at lower levels, which diminishes the strength of an overall bearish tone.
Initial resistance emerges at 0.6980, where the 20-day EMA clusters with recent minor swing highs, followed by stronger resistance at 0.7050, whose break would be needed to challenge the 0.7120 peak. On the downside, the March 31 low at 0.6834 is the immediate support is at 0.6885, guarding the late pullback lows, with a break exposing the January 7 high of 0.6766 as the next level.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
- The Indian Rupee recovers strongly against the US Dollar as both the US and Iran signal readiness to end the war.
- Iran wants guarantees of no repetitive aggression from the US in return for peace.
- FIIs continue to dump their stake in the Indian stock market.
The Indian Rupee (INR) opens higher against the US Dollar (USD) on Wednesday after a holiday due to the Shri Mahavir Jayanti the previous day. The USD/INR pair slumps to near 93.65 from the all-time high of 95.22 posted on Monday, as a significant de-escalation in the Middle East war, following comments from both the United States (US) and Iran signaling their willingness to end the war, has improved the appeal of risk-sensitive assets.
US and Iran show readiness to end Middle East war
On Tuesday, Iran’s President Masoud Pezeshkian told European Union (EU) Council President António Costa that his country is ready to end the war with the US, but it needs certain guarantees especially no repetition of aggression, Iranian state news agency reported.
These comments from Iran came after US President Donald Trump announced that Washington is willing to end the war with Iran despite the Strait of Hormuz remaining closed, a channel to almost 20% of global oil supply. Trump added that forcing the waterway back open would mean extending the military mission beyond his timeline of four to six weeks, Wall Street Journal (WSJ) reported.
Meaningful signs of US-Iran war de-escalation have diminished demand for safe-haven assets, such as the US Dollar. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades subduedly near Tuesday’s low around 99.85. The USD Index fell almost 0.8% on Tuesday after posting a fresh 10-month high at around 100.65.
FIIs continue to pare stake in Indian stock market
Currencies from economies like India, which are in their developing stage, rely heavily on foreign investments for a strong financial system. The consistent outflow of foreign funds from the Indian stock market has battered the Indian Rupee significantly in the past months.
In March, Foreign Institutional Investors (FIIs) offloaded their stake worth Rs. 1,22,539.89 crore from the Indian stock market due to the war in the Middle East, assuming that higher oil prices in the wake of the war would be a drag on Nifty 50 Q4FY2025-26 earnings.
US data awaited
On Wednesday, investors will focus on the US ADP Employment Change and the ISM Manufacturing PMI data for March, and Retail Sales data for February, which will be published in the North American session. Economists expect US private sector to have created 40K fresh jobs, lower than 63K in February.
The ISM is expected to report that the Manufacturing PMI will tick higher to 52.5 from the previous reading of 52.4. US Retail Sales are estimated to have grown 0.5% after declining 0.2% in January.
Technical Analysis: USD/INR retraces from all-time highs of 95.22
USD/INR corrects sharply from the all-time high of 95.22 to near 93.65 in the opening session on Wednesday. However, the continuation of higher highs and higher lows from the 90s area suggests that the bullish trend is bullish. The ascending 20-day Exponential Moving Average (EMA) near 93.13 confirms a strong bullish tone.
The 14-day Relative Strength Index (RSI) falls below 60.00 after remaining inside the 60.00-80.00 zone for a longer period, indicating the suspension of the bullish momentum with the upside bias remaining intact.
Initial support emerges at 20-day EMA, which is around 93.13, followed by previous peak levels in the 92.00-92.35 range. A downside break below the range would dent the overall bullish structure and open the way towards the March 5 low of 91.35. On the upside, the all-time high of 95.22 will be the major barrier for the spot price. A decisive break above the same would boost the odds of an extension of the advance toward 96.00.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
- Gold gains some follow-through traction on Wednesday, though bulls seem hesitant amid mixed cues.
- Hopes for de-escalation of Middle East tensions weigh on the USD and support the precious metal.
- Inflation fears and Fed rate hike bets remain in play, limiting USD losses and capping the commodity.
Gold (XAU/USD) surrenders modest Asian session gains to a nearly two-week top and currently trades near the lower end of its daily range, below the $4,700 mark. President Donald Trump said on Tuesday that he expects the US to wrap up its military operation against Iran within two to three weeks and added that Tehran does not have to make a deal for him to end the war. The optimism, in turn, weighed on the US Dollar's (USD) global reserve currency status and provided an intraday lift to the commodity.
Meanwhile, the US deploys 3,500 Marines to the Middle East to reinforce approximately 50,000 US troops already stationed across the region. This marks the largest American military buildup in two decades. Moreover, reports suggest that the United Arab Emirates (UAE) is pushing for military action to reopen the Strait of Hormuz, fueling worries about a broader regional conflict and acting as a tailwind for Crude Oil prices. This, in turn, keeps inflation concerns and Federal Reserve (Fed) rate hike bets in play, which helps limit deeper USD losses and caps any further appreciation for the non-yielding Gold.
Trump will give an address to the nation on Wednesday night at 9 PM EDT (01:00 GMT on Thursday) to update the public on the Iran war. This, along with important US macro releases scheduled at the beginning of a new month, should provide some meaningful impetus to the XAU/USD pair. The US economic docket features the ADP report on private sector employment, the monthly Retail Sales, and the ISM Manufacturing PMI. Apart from this, speeches by influential FOMC members will play a key role in driving the USD demand and producing short-term trading opportunities around the Gold price.
The market attention will then shift to the closely-watched US Nonfarm Payrolls (NFP) report, due on Friday. However, the focus will remain glued to geopolitical developments, which should continue to infuse volatility into the financial markets and influence the Gold price dynamics.
XAU/USD daily chart
Gold seems poised to appreciate further; 100-SMA breakpoint holds the key for bulls
Against the backdrop of last week's solid rebound from a technically significant 200-day Simple Moving Average (SMA), the overnight breakout through the 38.2% Fibonacci retracement level of the March downfall and the 100-day SMA favors the XAU/USD bulls.
The subsequent move up, however, stalls ahead of the 50% retracement level. Moreover, the Moving Average Convergence Divergence (MACD) line stays below its signal line and in negative territory, with the histogram extended to the downside, which reinforces prevailing selling pressure. Furthermore, the Relative Strength Index (RSI) hovers around 46 after recovering from oversold territory, hinting that bearish momentum is easing but not yet reversing.
Hence, it will be prudent to wait for some follow-through buying beyond the $4,745-$4,750 area (50% retracement level) before positioning for additional gains. In the meantime, the 38.2% retracement at $4,590.05 emerges as initial support ahead of the $4,500 psychological mark and the $4,400 round figure that aligns with the 23.6% Fibo. retracement. A convincing break below the latter would deepen the corrective phase and expose the 200-day SMA pivotal support near $4,136.72.
(The technical analysis of this story was written with the help of an AI tool.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
- EUR/USD struggles to capitalize on modest Asian session move up to a one-week high.
- Inflation fears keep Fed rate hike bets in play, supporting the USD and capping the pair.
- The mixed technical setup also warrants caution before positioning for additional gains.
The EUR/USD pair touches a one-week top on Wednesday, though it lacks follow-through buying and remains below the 1.1600 mark through the Asian session. Moreover, the mixed fundamental backdrop warrants some caution before positioning for any further appreciating move.
Despite the optimism over hopes for an early US exit from the Iran war, reports that the UAE is pushing for military action to reopen the Strait of Hormuz keep geopolitical risks in play. This continues to fuel inflationary concerns and hawkish US Federal Reserve (Fed) expectations, which act as a tailwind for the US Dollar (USD) and cap the upside for the EUR/USD pair.
From a technical perspective, the overnight breakout through the 200-hour Exponential Moving Average (EMA) was seen as a key trigger for bullish traders. Moreover, the Moving Average Convergence Divergence (MACD) indicator eases toward the signal line while remaining marginally positive, suggesting fading but still positive momentum after the advance.
Meanwhile, the Relative Strength Index (RSI) near 66 retreats from overbought readings above 70, indicating cooling upside pressure rather than a clear reversal at this stage. Hence, it will be prudent to wait for a move beyond the 61.8% Fibonacci retracement level of the recent fall witnessed over the past week or so before placing fresh bullish bets around the EUR/USD pair.
A sustained break higher would open the way toward the 1.1599 barrier and then the recent swing high around 1.1641. On the downside, immediate support emerges at the 38.2% Fibo. at 1.1520, reinforced by the nearby 200-hour EMA to form a key demand zone. A deeper setback would expose the 23.6% Fibo. level at 1.1492, where buyers would be expected to defend the broader upswing.
(The technical analysis of this story was written with the help of an AI tool.)
EUR/USD 1-hour 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.
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