EUR/USD Forecast: Euro bears refuse to give up control
- EUR/USD trades in negative territory below 1.1000 on Wednesday.
- The technical outlook remains bearish in the near term.
- The Fed will release the minutes of the September policy meeting later.
After posting small gains on Tuesday, EUR/USD stays on the back foot early Wednesday and trades in negative territory below 1.1000. The minutes of the Federal Reserve's (Fed) September policy meeting could trigger the next directional move in the pair.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.26% | -0.01% | 0.74% | 0.92% | 1.23% | -0.12% | |
| EUR | -0.11% | 0.22% | -0.07% | 0.66% | 0.79% | 1.14% | -0.25% | |
| GBP | -0.26% | -0.22% | -0.33% | 0.46% | 0.57% | 0.95% | -0.35% | |
| JPY | 0.01% | 0.07% | 0.33% | 0.74% | 0.90% | 1.20% | -0.08% | |
| CAD | -0.74% | -0.66% | -0.46% | -0.74% | 0.20% | 0.50% | -0.86% | |
| AUD | -0.92% | -0.79% | -0.57% | -0.90% | -0.20% | 0.39% | -1.00% | |
| NZD | -1.23% | -1.14% | -0.95% | -1.20% | -0.50% | -0.39% | -1.33% | |
| CHF | 0.12% | 0.25% | 0.35% | 0.08% | 0.86% | 1.00% | 1.33% |
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).
In the absence of high-tier data releases, the positive shift seen in risk mood made it difficult for the US Dollar (USD) to gather strength on Tuesday and helped EUR/USD hold its ground. The sharp decline in Asian stock indices cause investors to adopt a cautious stance early Wednesday, supporting the USD and weighing on the pair. At the time of press, US stock index futures were down between 0.25% and 0.3% on the day, pointing to a bearish opening in Wall Street.
After the September meeting, the Fed decided to lower the policy rate by 50 basis points (bps). Investors will pay close attention to discussions surrounding this decision within the minutes. In case the publication shows that policymakers keep an open mind about opting for large rate cuts in the near future, the immediate market reaction could cause the USD to weaken. According to the CME FedWatch Tool, markets are currently pricing in a 13% probability of the Fed lowering the policy rate by another 50 bps at the November meeting.
Meanwhile, European Central Bank (ECB) policymaker and Slovakian central bank Governor Peter Kazimir said on Wednesday that he is not convinced that they should decide on the policy on the basis of one good inflation figure. This comment, however, failed to support the Euro.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays in the bearish territory but holds above 30, suggesting that EUR/USD has more room on the downside before turning technically oversold.
On the downside, 1.0950 (static level, Fibonacci 61.8% retracement of the latest uptrend) aligns as first support before 1.0900 (round level) and 1.0870 (Fibonacci 78.6% retracement). In case EUR/USD manages to reclaim 1.1000 (Fibonacci 50% retracement), next resistance could be seen at 1.1050 (Fibonacci 38.2% retracement) ahead of 1.1090-1.1100 (100-period Simple Moving Average (SMA), 200-period SMA, Fibonacci 23.6% retracement).
Euro FAQs
The Euro is the currency for the 19 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.
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.
