EUR/USD Forecast: Euro could test 1.0700 next unless it reclaims 1.0760
|- EUR/USD trades below 1.0750 following Monday's sharp decline.
- Next key support for the pair is located at 1.0700.
- US data and Fedspeak could drive the USD's valuation.
EUR/USD came under bearish pressure in the American session on Monday and dropped to its lowest level since mid-February below 1.0750. The pair could test 1.0700 next unless it manages to stabilize above 1.0760.
The data from the US showed on Monday that the ISM Manufacturing PMI rose to 50.3 in March from 47.8 in February. This reading showed that the business activity in the manufacturing sector moved into expansion territory for the first time since September 2022. Additionally, the PMI report highlighted strengthening input price pressures.
Following the data, the probability of the Federal Reserve leaving the policy rate unchanged in June climbed above 40% from 30% before the PMI release. In turn, the US Dollar (USD) gathered strength against its rivals and forced EUR/USD to turn south.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.59% | 0.64% | 0.29% | 0.41% | 0.14% | 0.52% | 0.71% | |
| EUR | -0.60% | 0.05% | -0.30% | -0.18% | -0.45% | -0.08% | 0.12% | |
| GBP | -0.66% | -0.06% | -0.36% | -0.23% | -0.52% | -0.13% | 0.06% | |
| CAD | -0.29% | 0.31% | 0.35% | 0.13% | -0.15% | 0.22% | 0.44% | |
| AUD | -0.42% | 0.18% | 0.23% | -0.14% | -0.27% | 0.10% | 0.30% | |
| JPY | -0.15% | 0.47% | 0.49% | 0.16% | 0.30% | 0.38% | 0.57% | |
| NZD | -0.53% | 0.07% | 0.12% | -0.22% | -0.11% | -0.39% | 0.18% | |
| CHF | -0.73% | -0.12% | -0.07% | -0.42% | -0.30% | -0.58% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
On Tuesday, the US Bureau of Labor Statistics will release the JOLTS Job Openings data for February, which is forecast to stay relatively unchanged below 9 million. More importantly, several Fed policymakers will be delivering speeches.
In case Fed officials leave the door open to a rate cut in June, the market positioning suggests that the USD could come under selling pressure. On the other hand, hawkish comments could provide a boost to the USD and cause EUR/USD to extend its slide.
EUR/USD Technical Analysis
The Relative Strength Index on the 4-hour chart edged slightly higher after dropping below 30, suggesting that the bearish bias remains intact after a short-lasting correction attempt. On the upside, 1.0760 (Fibonacci 78.6% retracement of the latest uptrend) aligns as immediate resistance. In case EUR/USD fails to reclaim this level, sellers could retain control and drag the pair lower toward 1.0700 (beginning point of the uptrend) before 1.0650 (static level from November).
If the pair manages to stabilize above 1.0760, resistances could be seen at 1.0800 (Fibonacci 61.8% retracement), 1.0830 (Fibonacci 50% retracement) and 1.0850 (200-period Simple Moving Average).
(This story was corrected at 08:57 GMT to say the ISM Manufacturing PMI rose to 50.3 in March from 47.8 in February, not 48.4)
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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