EUR/USD Forecast: Buyers could take action once Euro stabilizes above 1.0900
- EUR/USD corrects lower after posting strong gains on Monday.
- The US Dollar weakened against its major rivals after PMI data.
- JOLTS Job Openings data will be featured in the economic calendar on Tuesday.
EUR/USD rose sharply and reached its highest level since late March above 1.0900 on Monday. After edging higher in the Asian session on Tuesday, the pair lost its traction and retreated below this level. April JOLTS Job Openings data from the US will be watched closely by market participants later in the day.
The data from the US showed on Monday that the ISM Manufacturing PMI fell to 48.7 in May from 49.2 in April. This reading showed that the business activity in the manufacturing sector continued to contract at an accelerating pace. Additionally, the Prices Paid Index, the inflation component of the survey, declined to 57 from 60.9. The US Dollar (USD) came under strong selling pressure after the PMI report and helped EUR/USD push higher.
The probability of the Federal Reserve (Fed) leaving its policy rate unchanged in September declined to 40% from nearly 50% before the PMI data, according to the CME FedWatch Tool.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.30% | -0.27% | -1.26% | 0.34% | 0.04% | -0.55% | -0.94% | |
| EUR | 0.30% | 0.05% | -0.96% | 0.64% | 0.20% | -0.26% | -0.66% | |
| GBP | 0.27% | -0.05% | -0.93% | 0.60% | 0.21% | -0.36% | -0.71% | |
| JPY | 1.26% | 0.96% | 0.93% | 1.58% | 1.35% | 0.86% | 0.49% | |
| CAD | -0.34% | -0.64% | -0.60% | -1.58% | -0.33% | -0.90% | -1.28% | |
| AUD | -0.04% | -0.20% | -0.21% | -1.35% | 0.33% | -0.47% | -0.91% | |
| NZD | 0.55% | 0.26% | 0.36% | -0.86% | 0.90% | 0.47% | -0.44% | |
| CHF | 0.94% | 0.66% | 0.71% | -0.49% | 1.28% | 0.91% | 0.44% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Early Tuesday, the negative shift seen in risk mood helps the USD stay resilient against its rivals. At the time of press, major equity indexes in the US were down between 0.4% and 0.5%. In the second half of the day, the US Bureau of Labor Statistics will release the JOLTS Job Openings data for April. Markets expect job openings to decline to 8.34 million from 8.48 million in March. A reading at or below 8 million could trigger another leg of USD selloff. On the other hand, a positive surprise could help the USD hold its ground and limit EUR/USD's upside.
Investors will also pay close attention to the risk perception. A sharp decline in Wall Street's main indexes after the opening bell could provide a boost to the USD.
EUR/USD Technical Analysis
EUR/USD returned within the lower half of the ascending channel and the Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 60 after touching 70 earlier in the day, pointing to a loss of bullish momentum.
On the downside, 1.0840 (100-period Simple Moving Average (SMA), lower limit of the ascending channel) aligns as first support before 1.0800 (psychological level, static level) and 1.0780 (200-period SMA).
Immediate resistance is located at 1.0900 (mid-point of the ascending channel, static level) ahead of 1.0950 (upper limit of the ascending channel).
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.
