EUR/USD Forecast: Bullish potential intact with possibility of short-term correction
- EUR/USD trades in a narrow channel below 1.1200 early Monday.
- The near-term technical outlook suggests that the bullish trend remains intact.
- US economic calendar will feature Durable Goods Orders data for July.
EUR/USD stays in a consolidation phase below 1.1200 in the European morning after reaching its highest level in over a year. The pair's near-term technical picture suggests that the bullish trend remains in place but there could be a correction before the next leg higher.
Euro PRICE Last 7 days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.40% | -1.92% | -2.58% | -1.29% | -1.56% | -2.62% | -2.26% | |
| EUR | 1.40% | -0.61% | -1.16% | 0.10% | -0.26% | -1.40% | -0.90% | |
| GBP | 1.92% | 0.61% | -0.70% | 0.68% | 0.34% | -0.73% | -0.29% | |
| JPY | 2.58% | 1.16% | 0.70% | 1.23% | 1.00% | 0.08% | 0.19% | |
| CAD | 1.29% | -0.10% | -0.68% | -1.23% | -0.29% | -1.25% | -1.00% | |
| AUD | 1.56% | 0.26% | -0.34% | -1.00% | 0.29% | -0.99% | -0.64% | |
| NZD | 2.62% | 1.40% | 0.73% | -0.08% | 1.25% | 0.99% | 0.39% | |
| CHF | 2.26% | 0.90% | 0.29% | -0.19% | 1.00% | 0.64% | -0.39% |
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 heavy selling pressure surrounding the US Dollar (USD) on Friday helped EUR/USD surge higher heading into the weekend.
While delivering a prepared statement at the Jackson Hole Economic Symposium on Friday, Federal Reserve (Fed) Chairman Jerome Powell acknowledged that the time has come for the monetary policy to adjust. "We will do everything we can to support a strong labor market as we make further progress toward price stability," Powell added. These comments triggered a decline in US Treasury bond yields and forced the USD to weaken against its major rivals.
The cautious market mood at the beginning of the week helps the USD limit its losses and makes it difficult for EUR/USD to preserve its bullish momentum.
In the second half of the day, the US Census Bureau will release Durable Goods Orders data for July. Markets expect a 4% increase following the 6.7% decline recorded in June. A bigger-than-forecast growth in this data could support the USD with the immediate reaction.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart moves sideways near 70 after rising toward 80 on Friday, suggesting that EUR/USD is in a correctional phase. Nevertheless, the pair remains within the ascending regression channel and trades comfortably above the 20-period Simple Moving Average after dipping below it early Friday, reflecting the bullish stance.
On the downside, 1.1150 (20-period SMA, mid-point of the ascending channel) aligns as next support before 1.1100 (static level) and 1.1080 (50-period SMA, lower limit of the ascending channel).
Resistance are located at 1.1200 (static level), 1.1230 (upper limit of the ascending channel) and 1.1260 (static level from July 2023).
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.
