EUR/USD Forecast: Euro clings to bullish stance on broad USD weakness
- EUR/USD trades marginally higher on the day, above 1.1750.
- The US government has officially shutdown for the first time in six years.
- Markets will remain focused on US politics and asses data releases.
Following Tuesday's choppy action, EUR/USD edges higher and clings to small daily gains, slightly above 1.1750, in the European session on Wednesday. Investors will keep a close eye on political developments in the US and scrutinize the data releases.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.45% | -0.57% | -1.62% | -0.11% | -1.01% | -0.50% | -0.37% | |
| EUR | 0.45% | -0.13% | -1.31% | 0.34% | -0.57% | -0.06% | 0.06% | |
| GBP | 0.57% | 0.13% | -1.11% | 0.47% | -0.50% | 0.07% | 0.19% | |
| JPY | 1.62% | 1.31% | 1.11% | 1.57% | 0.65% | 1.01% | 1.31% | |
| CAD | 0.11% | -0.34% | -0.47% | -1.57% | -0.86% | -0.39% | -0.27% | |
| AUD | 1.01% | 0.57% | 0.50% | -0.65% | 0.86% | 0.51% | 0.67% | |
| NZD | 0.50% | 0.06% | -0.07% | -1.01% | 0.39% | -0.51% | 0.27% | |
| CHF | 0.37% | -0.06% | -0.19% | -1.31% | 0.27% | -0.67% | -0.27% |
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 US Dollar (USD) came under selling pressure in the Asian trading hours, as the US federal government has officially shutdown after Republicans refused to include an extension of the enhanced Affordable Care Act premium subsidies in the funding bill.
Lawmakers are expected to vote on the same funding plan early Wednesday. In case some Democrats change their minds and vote in favor of funding the government for another seven weeks, with an aim to continue negotiations during that period, the immediate market reaction could trigger a recovery in the USD and make it difficult for EUR/USD to continue to push higher.
Later in the day, the ADP Employment Change and the ISM Manufacturing Purchasing Managers' Index (PMI) data for September will be featured in the US economic calendar. A positive surprise in the private sector jobs, or the PMI data, could help the USD hold its ground. Unless funding is restored, however, investors could refrain from placing themselves in a position for a steady recovery in the USD.
Meanwhile, US stock index futures trade deep in negative territory in the European session. A bearish opening in Wall Street, followed by a sharp decline in main equity indexes, could force investors to seek refuge. In this scenario, EUR/USD could struggle to gather bullish momentum.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose slightly above 60, pointing to a bullish stance.
On the upside, 1.1750-1.1770 (100-period Simple Moving Average (SMA), Fibonacci 23.6% retracement of the latest uptrend) aligns as the first resistance area before 1.1820 (static level) and 1.1900 (round level). Looking south, support levels could be spotted at 1.1710-1.1690 (200-period SMA, Fibonacci 38.2% retracement) and 1.1640 (Fibonacci 50% retracement).
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.
