EUR/USD Forecast: Bearish pressure returns following Fed-inspired rebound
- EUR/USD trades at multi-week lows below 1.0800 on Thursday.
- The US Dollar rebounds following the Fed-inspired decline.
- US economic calendar will feature weekly Jobless Claims and ISM Manufacturing PMI data.
EUR/USD edged higher in the late American session on Wednesday and registered modest daily gains as the US Dollar (USD) struggled to find demand following the Federal Reserve's (Fed) monetary policy announcement. The pair, however, came under renewed bearish pressure early Thursday and dropped to its weakest level since early July below 1.0800.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.67% | 0.67% | -2.66% | 0.00% | 0.44% | -0.83% | -0.93% | |
| EUR | -0.67% | -0.04% | -3.31% | -0.61% | -0.18% | -1.50% | -1.57% | |
| GBP | -0.67% | 0.04% | -3.31% | -0.63% | -0.15% | -1.46% | -1.53% | |
| JPY | 2.66% | 3.31% | 3.31% | 2.71% | 3.22% | 1.87% | 1.81% | |
| CAD | -0.00% | 0.61% | 0.63% | -2.71% | 0.48% | -0.86% | -0.91% | |
| AUD | -0.44% | 0.18% | 0.15% | -3.22% | -0.48% | -1.30% | -1.39% | |
| NZD | 0.83% | 1.50% | 1.46% | -1.87% | 0.86% | 1.30% | -0.07% | |
| CHF | 0.93% | 1.57% | 1.53% | -1.81% | 0.91% | 1.39% | 0.07% |
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 US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The Fed left the policy rate unchanged at the range of 5.25%-5.5% following the July policy meeting, as widely anticipated. Although Fed Chairman Jerome Powell reiterated the data-dependent approach, he acknowledged that a rate cut will be on the table at the September meeting. Additionally, Powell said that there was a "real discussion" about lowering the policy rate at this meeting.
These comments helped the market mood improve and caused the USD to lose interest. Because a September rate cut was already fully priced in ahead of the Fed meeting, according to the CME FedWatch Tool, the USD weakness remained short-lived, not allowing EUR/USD to stretch higher.
In the second half of the day, the US Department of Labor will release the weekly Initial Jobless Claims data. Investors expect the number of first-time applications for unemployment benefits to tick up to 236,000 from 235,000 in the previous week. A noticeable decline in this data could provide an additional boost to the USD and further weigh on EUR/USD. Later in the session, the ISM Manufacturing PMI for July will be watched closely by market participants. If the headline PMI print comes in above 50, the immediate reaction could support the USD. On the other hand, a negative surprise is likely to hurt the currency and help EUR/USD limit its losses.
EUR/USD Technical Analysis
EUR/USD turned south after testing the descending trend line resistance, currently located at 1.0830, and the Relative Strength Index extended its slide toward 30, reflecting a buildup of bearish momentum.
The Fibonacci 61.8% retracement of the latest uptrend aligns as immediate support at 1.0780 before 1.0740 (Fibonacci 78.6% retracement) and 1.0700 (psychological level, static level).
On the upside, the 100-day, the 50-day and the 200-day Simple Moving Averages (SMA) form strong resistance in the 1.0800-1.0820 area. Once the pair rises above this region and starts using it as support, an extended recovery toward 1.0860 (20-day SMA) could be seen.
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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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
