EUR/USD Forecast: Euro bulls could retain control while 1.0750 holds as support
- EUR/USD trades in a tight range above 1.0750 early Monday.
- Near-term technical outlook suggests that the bullish bias remains intact.
- Comments from Fed officials and risk perception could drive the pair's action.
EUR/USD fluctuates in a tight channel slightly above 1.0750 early Monday after closing the previous week in positive territory. The technical picture suggests that the pair could stay bullish in the near term.
The disappointing data releases from the US caused the US Dollar (USD) to weaken against its rivals on Friday and helped EUR/USD stretch higher ahead of the weekend.
Nonfarm Payrolls (NFP) in the US rose 175,000 in April, the Bureau of Labor Statistics reported. This reading fell short of the market expectation of 243,000. Additionally, the Unemployment Rate edged higher to 3.9% from 3.8%. Meanwhile, the ISM Services PMI dropped to 49.4 in April from 51.4 in March, pointing to a contraction in the service sector's business activity.
Eurostat will publish Producer Price Index (PPI) data for March later in the session, which is unlikely to trigger a noticeable market reaction. The US economic docket will not offer any high-tier data releases.
Investors will pay close attention to comments from Federal Reserve (Fed) officials. Federal Reserve Bank of Chicago President Austan Goolsbee told Bloomberg TV on Friday that employment numbers were solid. Fed Board of Governors member Michelle W. Bowman noted that there were upside risks to inflation outlook and added that she was open to raising rates if data showed a stall or a reversal in inflation progress.
In case Fed policymakers deliver hawkish remarks, the USD could stage a rebound and weigh on EUR/USD.
In the meantime, US stock index futures were last seen trading mixed on the day. A bullish opening in Wall Street could make it difficult for the USD to find demand in the American session.
EUR/USD Technical Analysis
EUR/USD climbed above the 200-period Simple Moving Average (SMA) for the first time in three weeks on Friday and closed the last four 4-hour candles above that level. Moreover, the Relative Strength Index holds comfortably above 60, reflecting the bullish bias.
On the upside, 1.0790-1.0800 (Fibonacci 50% retracement of the latest downtrend, static level) aligns as first resistance before 1.0830 (Fibonacci 61.8% retracement) and 1.0900 (Fibonacci 78.6% retracement).
Immediate support is located at 1.0750 (200-period SMA, Fibonacci 38.2% retracement) before 1.0720 (20-period SMA, 50-period SMA) and 1.0700 (Fibonacci 23.6% retracement).
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.
