EUR/USD Forecast: Euro buyers could hesitate to bet on a steady rebound
- EUR/USD trades near 1.1450 in the European session on Thursday.
- The US Dollar corrects lower following Wednesday's impressive rally.
- Markets await the next batch of data releases from the US.
EUR/USD lost more than 1% on Wednesday and touched its lowest level since early June near 1.1400. Although the pair trades in positive territory early Thursday, the technical outlook shows no signs of a reversal.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 2.71% | 1.31% | 1.17% | 0.92% | 1.72% | 1.60% | 1.92% | |
| EUR | -2.71% | -1.39% | -1.49% | -1.74% | -0.96% | -1.08% | -0.77% | |
| GBP | -1.31% | 1.39% | -0.28% | -0.36% | 0.44% | 0.32% | 0.63% | |
| JPY | -1.17% | 1.49% | 0.28% | -0.22% | 0.52% | 0.42% | 0.91% | |
| CAD | -0.92% | 1.74% | 0.36% | 0.22% | 0.78% | 0.68% | 0.99% | |
| AUD | -1.72% | 0.96% | -0.44% | -0.52% | -0.78% | -0.12% | 0.19% | |
| NZD | -1.60% | 1.08% | -0.32% | -0.42% | -0.68% | 0.12% | 0.31% | |
| CHF | -1.92% | 0.77% | -0.63% | -0.91% | -0.99% | -0.19% | -0.31% |
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 broad-based US Dollar (USD) strength weighed heavily on EUR/USD as investors reacted to the upbeat data releases and the Federal Reserve's (Fed) policy announcements.
The US Bureau of Economic Analysis (BEA) reported in its first estimate that the United States' (US) Gross Domestic Product (GDP) expanded at an annual rate of 3% in the second quarter. This reading followed the 0.5% contraction reported in the first quarter and beat the market expectation of 2.4%. Moreover, employment in the private sector rose by 104,000 in July, surpassing analysts' estimate of 78,000, the monthly report published by the Automatic Data Processing (ADP) showed.
Following the July meeting, the Fed held the policy steady at the range of 4.25%-4.5%, as expected. The policy statement showed that Governor Christopher Waller and Governor Michelle Bowman dissented, preferring a 25 basis points (bps) rate cut. In the post-meeting press conference, Fed Chairman Jerome Powell avoided saying whether a reduction in rates will be on the table in September, citing the uncertainty surrounding the inflation outlook. Powell further acknowledged that the current policy was still modestly restrictive but added that it was not holding back the economy.
The probability of a 25 bps rate cut in September declined below 45% from about 64% before the Fed event, as per CME FedWatch Tool, and boosted the USD.
Later in the day, weekly Initial Jobless Claims and the Personal Consumption Expenditures (PCE) Price Index data for June will be featured in the US economic calendar. The GDP report showed on Wednesday that the PCE Price Index rose 2.1% on a quarterly basis in the second quarter. Hence, the monthly, or the annual, PCE inflation figure for June is unlikely to trigger a market reaction.
On Friday, the US Bureau of Labor Statistics will release the July employment report, which will feature Nonfarm Payrolls and Unemployment Rate readings. Ahead of this event, profit-taking on the last trading day of July could help EUR/USD hold its ground.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 30, suggesting that EUR/USD has more room on the upside as part of a technical correction.
In case EUR/USD manages to stabilize above 1.1450 (Fibonacci 50% retracement of the latest uptrend), 1.1500 (static level, round level) could be seen as the next resistance level before 1.1540 (Fibonacci 38.2% retracement).
On the downside, an interim support seems to have formed at 1.1400 (static level) ahead of 1.1360 (Fibonacci 61.8% retracement) and 1.1300 (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.
