EUR/USD Forecast: Euro bulls stay on the sidelines
- EUR/USD trades slightly below 1.0750 after closing in the red on Tuesday.
- The cautious market stance could continue to cap the pair's upside.
- Markets will continue to scrutinize Fedspeak in the absence of high-impact data releases.
EUR/USD came under modest bearish pressure and closed in negative territory on Tuesday. The pair struggles to regain its traction early Wednesday and trades a few pips below 1.0750. The economic calendar will not offer any high-impact data releases and comments from Federal Reserve officials could impact influence the pair's action later in the day.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.47% | -1.41% | -0.60% | -0.44% | -0.27% | -0.40% | |
| EUR | 0.13% | -0.24% | -1.15% | -0.39% | -0.09% | -0.06% | -0.17% | |
| GBP | 0.47% | 0.24% | -0.97% | -0.14% | 0.13% | 0.18% | 0.08% | |
| JPY | 1.41% | 1.15% | 0.97% | 0.81% | 0.98% | 1.17% | 1.00% | |
| CAD | 0.60% | 0.39% | 0.14% | -0.81% | 0.05% | 0.34% | 0.27% | |
| AUD | 0.44% | 0.09% | -0.13% | -0.98% | -0.05% | 0.02% | -0.01% | |
| NZD | 0.27% | 0.06% | -0.18% | -1.17% | -0.34% | -0.02% | -0.07% | |
| CHF | 0.40% | 0.17% | -0.08% | -1.00% | -0.27% | 0.01% | 0.07% |
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 an essay published on Tuesday, Minneapolis Federal Reserve President Neel Kashkari said that inflation moving sideways raises questions about how restrictive the monetary policy is. Commenting on the policy outlook later in the day, Kashkari said that the most likely scenario was for rates to stay put for an extended period of time. He also added that they might need to hike rates if inflation were to become embedded.
Later in the day, Federal Reserve (Fed) Vice Chair of the Board of Governors Phillip Jefferson, Boston Fed President Susan Collins and Governor Lisa Cook will be delivering speeches.
The CME FedWatch Tool currently shows that markets are pricing in a nearly 35% probability that the Fed will leave the policy rate unchanged in September. In case Fed policymakers push back against expectations for a rate cut in September, the market positioning suggests that the US Dollar (USD) has more room on the upside.
EUR/USD Technical Analysis
EUR/USD trades near 1.0750, where the Fibonacci 38.2% retracement level of the latest downtrend and the 200-period Simple Moving Average (SMA) on the 4-hour chart align. If the pair falls below that level and starts using it as resistance, 1.0725 (50-period SMA) could act as interim support before 1.0700 (Fibonacci 23.6% retracement, 100-period SMA) and 1.0650 (static level).
On the upside, resistance levels could be seen at 1.0790-1.0800 (Fibonacci 50% retracement), 1.0830 (Fibonacci 61.8% retracement) and 1.0900 (Fibonacci 78.6% 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.
