EUR/USD Forecast: Euro bulls look to retain control
- EUR/USD rises toward 1.1350 in the European session on Friday.
- The US Dollar struggles to hold its ground after outperforming its rivals on Thursday.
- The technical outlook highlights ongoing buyer interest in the near term.
After snapping a three-day winning streak on Thursday, EUR/USD regains its traction and rises toward 1.1350 in the European session on Friday, supported by the broad-based selling pressure surrounding the US Dollar (USD).
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.41% | -1.53% | -1.39% | -1.15% | -0.79% | -1.10% | -1.26% | |
| EUR | 1.41% | -0.14% | 0.05% | 0.33% | 0.75% | 0.38% | 0.17% | |
| GBP | 1.53% | 0.14% | -0.10% | 0.47% | 0.89% | 0.52% | 0.31% | |
| JPY | 1.39% | -0.05% | 0.10% | 0.27% | 0.79% | 0.52% | 0.21% | |
| CAD | 1.15% | -0.33% | -0.47% | -0.27% | 0.37% | 0.05% | -0.16% | |
| AUD | 0.79% | -0.75% | -0.89% | -0.79% | -0.37% | -0.37% | -0.57% | |
| NZD | 1.10% | -0.38% | -0.52% | -0.52% | -0.05% | 0.37% | -0.21% | |
| CHF | 1.26% | -0.17% | -0.31% | -0.21% | 0.16% | 0.57% | 0.21% |
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 USD held its ground on Thursday and caused EUR/USD to stretch lower after the data published by S&P Global showed that the economic activity in the US' private sector expanded at an accelerating pace in May, with Composite Purchasing Managers Index (PMI) rising to 52.1 from 50.6 in April. In this period, the Services PMI and the Manufacturing PMI both improved to 52.3.
Nevertheless, the positive impact of the upbeat PMI data on the USD remains short-lived as investors grow increasingly concerned about the US government's debt outlook. US President Donald Trump's sweeping tax and spending bill, which is projected to add more than $3 trillion to the national debt over the next decade, passed the Republican-controlled House of Representatives on Thursday by a slim margin. The Senate is expected to start discussions on the bill after the Memorial Day holiday on May 26.
Meanwhile, the European Central Bank (ECB) reported on Friday that Negotiated Wage Rates rose 2.38% in the first quarter, down from the 4.12% increase recorded in the previous quarter. This reading eases concerns over strong wage inflation in the Eurozone and limits the Euro's gains for the time being.
The US economic calendar will not offer any high-tier data releases on Friday. Hence, the USD could have a difficult time staying resilient against its rivals heading into the weekend.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 60 and EUR/USD turned north after testing the 200-period Simple Moving Average (SMA) early Thursday, reflecting sellers' hesitancy.
EUR/USD could face next resistance at 1.1380 (Fibonacci 23.6% retracement of the latest uptrend) before 1.1430 (static level) and 1.1500 (static level, round level). On the downside, a key support area seems to have formed at 1.1280-1.1270 (Fibonacci 38.2% retracement, 100-period SMA, 200-period SMA) before 1.1200 (static level, round level) and 1.1180 (Fibonacci 50% 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.
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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.
