EUR/USD Forecast: ECB hints on policy outlook to drive Euro performance
- EUR/USD holds steady, trades in a tight range at around 1.1800 on Thursday.
- The ECB is widely anticipated to leave key rates unchanged.
- The technical outlook highlights the pair's indecisiveness in the near term.
EUR/USD treads water at around 1.1800 in the European session on Thursday as investors refrain from taking large positions ahead of the European Central Bank's (ECB) monetary policy announcements.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.52% | 0.87% | 1.48% | 0.67% | -0.24% | 0.50% | 0.78% | |
| EUR | -0.52% | 0.29% | 0.96% | 0.14% | -0.75% | -0.02% | 0.26% | |
| GBP | -0.87% | -0.29% | 0.56% | -0.15% | -1.06% | -0.32% | -0.04% | |
| JPY | -1.48% | -0.96% | -0.56% | -0.80% | -1.71% | -0.94% | -0.96% | |
| CAD | -0.67% | -0.14% | 0.15% | 0.80% | -0.86% | -0.15% | 0.11% | |
| AUD | 0.24% | 0.75% | 1.06% | 1.71% | 0.86% | 0.73% | 1.01% | |
| NZD | -0.50% | 0.02% | 0.32% | 0.94% | 0.15% | -0.73% | 0.29% | |
| CHF | -0.78% | -0.26% | 0.04% | 0.96% | -0.11% | -1.01% | -0.29% |
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).
EUR/USD registered small losses on Wednesday as the US Dollar (USD) managed to hold its ground after US data releases. The Automatic Data Processing's (ADP) monthly publication showed that employment in the private sector rose 22K in January, missing the market expectation of 48K. On a positive note, the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) held steady at 53.8, reflecting an ongoing expansion in the service sector's business activity at a healthy pace.
The ECB is widely anticipated to leave key rates unchanged following the February meeting. However, the latest inflation data, which showed that the Harmonized Index of Consumer Prices (HICP) rose by 1.7% in January following the 1.9% increase recorded in December, and the recent Euro strength could cause the ECB to adopt a dovish stance, noting heightened downside risks to inflation. In this scenario, EUR/USD could turn south with the immediate reaction.
On the other hand, EUR/USD could stage a rebound in case the ECB refrains from changing its tone on the inflation outlook and reiterates that they are comfortable with the currenty policy stance.
Previewing the ECB meeting, "we expect the ECB to leave their policy rate on hold through 2026, but judge that there is a higher risk of another cut than a hike given inflation is likely to undershoot their target," said MUFG Senior Currency Analyst Lee Hardman.
EUR/USD Technical Analysis:
The 20-period Simple Moving Average (SMA) slopes lower beneath the 50-period one, while the 100- and 200-period SMAs trend higher. Price sits below the 20- and 50-period SMAs but remains above the longer averages, keeping a bearish short-term tone within an improving medium-term backdrop. The Relative Strength Index (RSI) is at 43 (neutral) and has begun to edge higher, hinting at stabilizing momentum.
The 20-period SMA currently stands at 1.1811, acting as immediate resistance. Measured from the 1.1590 low to the 1.2025 high, the 50% retracement at 1.1808 reinforces this level ahead of 1.1860 (Fibonacci 38.2% retracement) and 1.1880 (50-period SMA). On the downside, the 100-period SMA could be seen as the first support level at 1.1780 before 1.1755-1.1750, where the 200-period SMA and the 61.8% retracement meet.
(The technical analysis of this story was written with the help of an AI tool.)
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.
