The European Union and the Eurozone surfaced as a counterpart to global economic forces like the United States and China, and out of the desire to avoid wars in Europe. The Euro is the second most traded currency on the Forex dashboard.
Not all member countries of the European Union adopted the Euro; only nineteen nations share the common currency, and these form the Eurozone. Among them, the biggest ones are Germany, France, Italy and Spain.
The Euro replaced essential currencies on the international scene, like the Deutsche Mark or the French Franc. For this reason, the central bank has a hard time setting the right monetary policy for all Eurozone countries, as differences exist.
ECB Meetings and Press Conference
The ECB (European Central Bank) supervises the economic evolution of the countries which are part of the Eurozone and sets the monetary policy accordingly. Meeting every six weeks, on a Thursday, the ECB always has a press conference following the interest rate decision announcement. Forty-five minutes after the rate announcement, the ECB President reads the Governing Council’s statement and then takes questions from the financial press representatives. This is when the Euro usually experiences extreme volatility levels.
Standing for Harmonized Index of Consumer Prices, HICP inflation is by far, the single biggest mover of the Euro, except for ECB decisions on monetary policy or speeches. The ECB has only one mandate. And, it revolves around inflation. While the Fed in the United States considers both inflation and jobs data before moving on rates, the ECB only considers price stability (a.k.a. inflation). Released monthly, the HICP tends to be a highly monitored event by ECB watchers and investors alike. Look for the core data (excluding transportation and energy costs) that matters the most to the decision-making body.
Purchasing Managers’ Index
The PMI or the Purchasing Managers’ Index is the equivalent of the ISM release in the United States. Similarly, it is a survey that refers to the services and manufacturing sectors. Managers of businesses from the two sectors must respond to questions related to their business activity for the next six months including changes in employment, inventory changes, factory orders, backlogs, etc. The release summarises this information, and the PMI reading is a number between 0 and 100. A PMI reading over 50 represents expansion, and a reading lower than 50 represent economic contraction.
The IFO survey mimics the PMI, with the only difference being that it refers to the German economy only. As the engine of European growth, the IFO is important to FX investors as they take indications from it; what happens in Germany will most likely follow in other countries.
The GDP (Gross Domestic Product) value is highly anticipated and may move the Euro too. In its short lifetime, the Euro turned out to be unpredictable in the field of international currency trading. For this reason, investors tend to focus mostly on the political issues originating from Europe, the European Union, and the Eurozone, rather than on other economic data. Until that changes, expect fundamental political news to top economic data anytime.
- ECB actions and the related press conference can move the Euro.
- HICP inflation is the only part of the ECB mandate.
- PMIs are a good indicator of the state of the economy.
- Politics plays a crucial role in the Euro’s volatility.