EUR/USD Forecast: Euro bulls move to sidelines
- EUR/USD trades below 1.0850 after closing in negative territory on Thursday.
- The near-term technical outlook highlights a lack of buyer interest.
- The cautious market mood could make it difficult for the pair to rebound.
EUR/USD failed to shake off the bearish pressure on Thursday and registered losses for the second consecutive day. The pair stays on the back foot and trades below 1.0850 in the European morning on Friday.
The US Dollar (USD) capitalized on the risk-averse market atmosphere and gathered strength against its rivals on Thursday. Upbeat macroeconomic data releases further supported the currency and made it difficult for EUR/USD to find a foothold.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.36% | 0.00% | 0.36% | -0.44% | 0.57% | -0.23% | -0.19% | |
| EUR | -0.36% | -0.47% | -0.39% | -0.79% | 0.08% | -0.60% | -0.58% | |
| GBP | -0.00% | 0.47% | 0.39% | -0.53% | 0.53% | -0.14% | -0.17% | |
| JPY | -0.36% | 0.39% | -0.39% | -0.80% | -0.00% | -0.53% | -0.68% | |
| CAD | 0.44% | 0.79% | 0.53% | 0.80% | 0.81% | 0.21% | -0.30% | |
| AUD | -0.57% | -0.08% | -0.53% | 0.00% | -0.81% | -0.64% | -0.63% | |
| NZD | 0.23% | 0.60% | 0.14% | 0.53% | -0.21% | 0.64% | 0.02% | |
| CHF | 0.19% | 0.58% | 0.17% | 0.68% | 0.30% | 0.63% | -0.02% |
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 US Department of Labor reported that there were 223,000 first-time applications for unemployment benefits in the week ending March 15, slightly below the market expectation of 224,000. Other data from the US showed that Existing Home Sales increased by 4.2% in February, following January's 4.7% decline. Finally, Philadelphia Fed Manufacturing Index arrived at 12.5 in March, surpassing analysts' estimate of 8.5.
The economic calendar will not feature any high-impact data releases on Friday. Hence, investors could react to changes in risk perception heading into the weekend. At the time of press, US stock index futures were down about 0.1% on the day. A bearish opening in Wall Street could help the USD hold its ground and cause EUR/USD to stretch lower.
Investors will also pay close attention to comments from Federal Reserve (Fed) officials now that the Fed's blackout period is over. According to the CME FedWatch Tool, markets are currently pricing in about a 15% probability of a 25 basis points (bps) rate cut in May. In case policymakers hint that another policy-easing step could be taken at the next meeting, the USD could come under renewed selling pressure and allow EUR/USD to reverse its direction.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 and EUR/USD continues to trade below the 20-period and the 50-period Simple Moving Averages (SMA). In case the pair drops below 1.0830 (static level) and starts using this level as resistance, it could meet interim support at 1.0800 (static level, round level) ahead of 1.0730 (200-day SMA).
On the upside, resistances could be spotted at 1.0890-1.0900 (20-period SMA, 50-period SMA, static level), 1.0950 (static level) and 1.1000 (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.
