EUR/USD Forecast: Euro bulls struggle to take control
- EUR/USD trades below 1.1700 in the European session on Wednesday.
- The bearish pressure builds up in the short-term technical outlook.
- The US economic calendar will feature key macro data releases.
After rising toward 1.1750 early Tuesday, EUR/USD made a sharp U-turn in the second half of the day and closed in negative territory. The pair stays on the back foot early Wednesday and trades below 1.1700.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.36% | -0.21% | -0.19% | 0.53% | -0.91% | -0.43% | 0.53% | |
| EUR | -0.36% | -0.57% | -0.48% | 0.17% | -1.27% | -0.78% | 0.17% | |
| GBP | 0.21% | 0.57% | 0.00% | 0.75% | -0.70% | -0.21% | 0.74% | |
| JPY | 0.19% | 0.48% | 0.00% | 0.69% | -0.76% | -0.27% | 0.74% | |
| CAD | -0.53% | -0.17% | -0.75% | -0.69% | -1.28% | -0.96% | 0.00% | |
| AUD | 0.91% | 1.27% | 0.70% | 0.76% | 1.28% | 0.49% | 1.45% | |
| NZD | 0.43% | 0.78% | 0.21% | 0.27% | 0.96% | -0.49% | 0.96% | |
| CHF | -0.53% | -0.17% | -0.74% | -0.74% | -0.00% | -1.45% | -0.96% |
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 renewed US Dollar (USD) strength caused EUR/USD to turn south in the American session on Tuesday. Markets still see a less than 20% chance of the Federal Reserve (Fed) lowering the policy rate at the January meeting, according to the CME FedWatch Tool, and this positioning seems to be helping the USD stay resilient against its rivals.
In the second half of the day, the Automatic Data Processing (ADP) will publish the private sector employment data. Markets expect an increase of 45,000 in private sector payrolls in December, following the 32,000 decrease recorded in November. A reading better than expected could feed into expectations for a Fed policy hold and help the USD outperform its rivals. On the other hand, a negative print could trigger a USD selloff and open the door for a decisive rebound in EUR/USD with the immediate reaction.
Later in the session, investors will also pay close attention to the Institue for Supply Management's Services Purchasing Managers' Index (PMI) report for December. The headline PMI is forecast to come in above 50 and show an ongoing expansion in the service sector's business activity. An unexpected drop below 50 could weigh on the USD. Conversely, a reading near the market expectation, combined with a recovery above 50 in the Employment Index of the survey, could boost the USD and force EUR/USD to stretch lower.
EUR/USD Technical Analysis:
The 20-period Simple Moving Average (SMA) extends its slide below the 50- and 100-period SMAs, while price holds beneath these averages and rests around the slowly rising 200-period SMA. The RSI (14) prints at 38, reflecting bearish momentum without oversold conditions. The 200-period SMA aligns as the immediate support level at 1.1675. Measured from the 1.1503 low to the 1.1800 high, the 50% retracement at 1.1652 could be seen as the next support level before 1.1615 (Fibonacci 61.8% retracement).
Recovery attempts could face immediate resistance at 1.1690-1.1705 (Fibonacci 23.6% retracement, 20-period SMA) ahead of 1.1730 (Fibonacci 23.6% retracement) and 1.1745 (50-peirod SMA, 100-period SMA).
(The technical analysis of this story was written with the help of an AI tool)
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.
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.
