EUR/USD Forecast: Euro buyers hesitant to bet on a steady recovery
- EUR/USD trades below 1.0500 after closing in positive territory on Monday.
- The cautious market mood could limit the pair's recovery attempts.
- The Fed will release the minutes of the November policy meeting.
After starting the week decisively higher, EUR/USD lost its bullish momentum in the American session on Monday but closed the day in positive territory. The pair stays relatively quiet early Tuesday and trades below 1.0500.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.56% | -0.14% | 0.03% | 1.14% | 0.31% | 0.28% | -0.49% | |
| EUR | 0.56% | 0.25% | -0.02% | 1.11% | 0.80% | 0.27% | -0.51% | |
| GBP | 0.14% | -0.25% | -0.27% | 0.86% | 0.55% | 0.01% | -0.76% | |
| JPY | -0.03% | 0.02% | 0.27% | 1.12% | 0.73% | 0.33% | -0.33% | |
| CAD | -1.14% | -1.11% | -0.86% | -1.12% | -0.67% | -0.83% | -1.64% | |
| AUD | -0.31% | -0.80% | -0.55% | -0.73% | 0.67% | -0.54% | -1.30% | |
| NZD | -0.28% | -0.27% | -0.01% | -0.33% | 0.83% | 0.54% | -0.78% | |
| CHF | 0.49% | 0.51% | 0.76% | 0.33% | 1.64% | 1.30% | 0.78% |
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).
News of Donald Trump nominating fund manager Scott Bessent as the US Treasury Secretary caused the US Dollar to weaken against its major rivals early Monday. In the second half of the day, improving risk mood on reports of Israel and Lebanon closing in on a ceasefire deal put additional weight on the currency.
Early Tuesday, however, market mood began to sour after Trump said he would impose a 25% tax on all products entering the country from Canada and Mexico and an additional 10% tariff on goods from China as one of his first executive orders. This development helped the USD find a foothold and made it difficult for EUR/USD to build on Monday's gains.
Later in the American session, the Federal Reserve will release the minutes of the November policy meeting.
The CME FedWatch Tool currently shows that markets are pricing in a nearly 44% probability of the Fed leaving the policy rate unchanged at the December policy meeting. In case the publication shows that policymakers are willing to lower rates again before the end of the year, the immediate reaction could hurt the USD and allow EUR/USD to stretch higher. On the other hand, the pair could struggle to gain traction if the FOMC Minutes suggest that a December rate cut is not a done deal, with officials waiting for data that would suggest a further easing in labor market conditions or a lack of progress in disinflation.
EUR/USD Technical Analysis
EUR/USD remains within the descending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays flat slightly below 50, highlighting a lack of bullish momentum.
On the downside, 1.0440 (mid-point of the descending channel) aligns as first support before 1.0400 (static level) and 1.0350 (lower limit of the descending channel). Looking north, first resistance could be spotted at 1.0500 (round level, static level) ahead of 1.0530 (50-period Simple Moving Average, upper limit of the descending channel) and 1.0570 (static 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.
