EUR/USD Forecast: Euro buyers hesitate ahead of Fed
- EUR/USD retreats below 1.0900 after closing in positive territory for three consecutive days.
- The Fed is widely expected to leave the policy rate unchanged.
- The revised Summary of Economic Projections and Powell presser could ramp up volatility.
After reaching a multi-month high above 1.0950 on Tuesday, EUR/USD corrects lower and trades below 1.0900 in the European morning on Wednesday. Investors await the Federal Reserve's (Fed) monetary policy announcements.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.58% | 0.33% | 0.07% | 0.15% | 0.46% | 0.42% | 0.03% | |
| EUR | -0.58% | -0.26% | -0.47% | -0.42% | -0.19% | -0.14% | -0.54% | |
| GBP | -0.33% | 0.26% | -0.19% | -0.16% | 0.08% | 0.12% | -0.29% | |
| JPY | -0.07% | 0.47% | 0.19% | 0.07% | 0.51% | 0.51% | 0.07% | |
| CAD | -0.15% | 0.42% | 0.16% | -0.07% | 0.30% | 0.30% | -0.14% | |
| AUD | -0.46% | 0.19% | -0.08% | -0.51% | -0.30% | 0.04% | -0.32% | |
| NZD | -0.42% | 0.14% | -0.12% | -0.51% | -0.30% | -0.04% | -0.41% | |
| CHF | -0.03% | 0.54% | 0.29% | -0.07% | 0.14% | 0.32% | 0.41% |
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).
EUR/USD registered gains on Tuesday but lost its bullish momentum in the second half of the day as the US Dollar managed to limit its losses following the upbeat macroeconomic data releases.
Later in the day, the Fed is widely expected to leave its monetary policy settings unchanged. Investors will pay close attention to the changes in the Summary of Economic Projections (SEP), the so-called dot plot.
A downward revision to growth projections could hurt the US Dollar (USD) with the immediate reaction. On the flip side, the USD could rally if the dot plot reveals that policymakers now project only one rate cut this year, down from the two rate cuts reported in December's publication.
In case Fed Chairman Jerome Powell adopts a cautious tone regarding the economic outlook in the post-meeting press conference, citing the potential negative impact of US President Donald Trump's tariffs on the activity, the USD could have a difficult time outperforming its rivals. On the flip side, the USD could hold its ground, if Powell downplays growth concerns and puts more emphasis on the uncertainty surrounding the inflation outlook.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50, reflecting a lack of buyer interest. On the downside, the lower limit of the ascending channel aligns as first support at 1.0840 ahead of 1.0800 (round level, static level) and 1.0730 (200-day Simple Moving Average).
Looking north, first resistance could be spotted at 1.0950 (static level), 1.1000-1.1020 (round level, mid-point of the ascending channel) and 1.1100 (round level, 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.
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.
