• EUR/USD reaches its highest since October 22, then falls back below 1.1200.
  • The Euro gains more than the Pound as Crude Oil and the Dollar both fall.
  • October euro area inflation is released Wednesday, forecast at 3.9%.

About half of the Euro's climb on a weaker Dollar has already gone. EUR/USD rose from a session low just above 1.1150 to just under 1.1250, its highest since October 22, before falling back to just under 1.1200. It went through Friday's high on the way up and is trading back inside Friday's range.

Crude Oil fell after President Trump signalled more time for diplomacy with Iran, and the Dollar fell with it, more against the Euro than the Pound. ING's global head of markets Turner expects the Dollar Index to keep trading around 102.00, and the Euro makes up more than half of that index.

European Central Bank (ECB) Governing Council member Escriva said the oil and gas price shock has been bigger than expected, with Crude Oil falling as he spoke. He said there's no sign yet of energy costs spreading to other prices, and Banque de France Governor Moulin called the impact on the wider economy moderate. EUR/USD fell back below 1.1200 while they spoke.

On the calendar

The October euro area inflation figure is released at 10:00 GMT on Wednesday, forecast at 3.9% after 3.8%, with the core rate forecast steady at 2.5%. ECB President Lagarde speaks at 16:00 GMT on Thursday, and both feed the ECB's December decision on its 2.50% deposit rate, the Euro side of the rate gap.

In the US, the Institute for Supply Management (ISM) services index is due at 15:00 GMT on Wednesday, forecast at 54.8 after 54.9. The October Nonfarm Payrolls (NFP) report follows on Friday at 13:30 GMT, with a 65K forecast. Both feed whether the Fed raises its 3.75%-4.00% rate after the October 28 hold.

On the charts

EUR/USD has traded between just above 1.1100 and short of 1.1300 since early October, after a slide from just above 1.1700 in late August. It has stayed under the 50-day Exponential Moving Average (EMA) since mid-September, and that average is just above 1.1300, with the 200-day just under 1.1500.

EUR/USD 5-minute 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.

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.