EUR/USD Forecast: Euro bulls look to retain control before Fed meeting starts
- EUR/USD trades at its highest level since early July near 1.1800.
- The US Dollar struggles to find demand ahead of the Fed policy meeting.
- The pair could correct lower if 1.1800 remains intact as resistance.
EUR/USD preserves its bullish momentum after closing in positive territory on Monday and trades at its highest level since early July near 1.1800 in the European session on Tuesday. The US Dollar (USD) could have a difficult time staging a decisive rebound ahead of the Federal Reserve's two-day policy meeting and help the pair hold its ground.
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 | -0.60% | -0.62% | -0.51% | -0.51% | -0.39% | -0.35% | -0.62% | |
| EUR | 0.60% | 0.00% | 0.03% | 0.10% | 0.26% | 0.21% | -0.02% | |
| GBP | 0.62% | -0.01% | 0.10% | 0.09% | 0.25% | 0.21% | -0.14% | |
| JPY | 0.51% | -0.03% | -0.10% | -0.03% | 0.16% | 0.14% | -0.10% | |
| CAD | 0.51% | -0.10% | -0.09% | 0.03% | 0.22% | 0.11% | -0.22% | |
| AUD | 0.39% | -0.26% | -0.25% | -0.16% | -0.22% | -0.04% | -0.31% | |
| NZD | 0.35% | -0.21% | -0.21% | -0.14% | -0.11% | 0.04% | -0.34% | |
| CHF | 0.62% | 0.02% | 0.14% | 0.10% | 0.22% | 0.31% | 0.34% |
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-impact data releases, the improving risk mood caused the USD to lose interest on Monday. Additionally, Senate Republicans confirmed White House economic adviser Stephen Miran to join the Federal Reserve Board. Miran, who is seen as a dove, will be able to vote at the upcoming meeting. This development also seems to be putting additional weight on the USD's shoulders.
The data from Germany showed on Tuesday that ZEW Survey - Current Situation Index dropped to -76.4 in September from -68.6, while the Economic Sentiment Index improved to 37.3 from 34.7. In the Eurozone, Industrial Production expanded by 0.3% on a monthly basis in July following the 0.6% contraction recorded in June. These prints failed to influence the Euro's performance in a noticeable way.
Later in the day, the US Census Bureau will publish Retail Sales data for August. Although a stronger-than-forecast increase could support the USD with the immediate reaction, investors could refrain from betting on a steady recovery in the near term.
Meanwhile, US stock index futures were last seen gaining between 0.1% and 0.35% on the day. In case risk flows continue to dominate the action in financial markets in the second half of the day, EUR/USD could continue to stretch higher.
EUR/USD Technical Analysis
EUR/USD trades near the upper limit of the ascending channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 70. In case the pair fails to flip 1.1800 (upper limit of the ascending channel) into resistance, technical buyers could be discouraged. In this scenario, 1.1770 (static level, former resistance) could be seen as the first support level before 1.1730 (50-period Simple Moving Average (SMA), mid-point of the ascending channel) and 1.1690-1.1700 (100-period SMA, static level).
On the upside, 1.1830 (July 1 high) aligns as an interim resistance before EUR/USD could target 1.1900 (static level, round level).
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.
