EUR/USD Forecast: Euro closes in on key resistance area
- EUR/USD holds comfortably above 1.0850 in the European session on Tuesday.
- The pair could face stiff resistance at 1.0890-1.0900.
- Consumer Confidence data from the US and comments from Fed officials will be watched closely by investors.
EUR/USD gained traction during the American trading hours on Monday and closed the day in positive territory. The pair holds comfortably above 1.0850 on Tuesday but could have a hard time clearing 1.0890-1.0900 area.
Following a three-day weekend in the US, US stock index futures trade higher early Tuesday, pointing to an improving risk mood. In turn, the US Dollar is struggling to stay resilient against its major rivals.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | -0.26% | -0.03% | -0.31% | -0.46% | -0.77% | -0.33% | |
| EUR | 0.25% | -0.03% | 0.26% | -0.05% | -0.27% | -0.59% | -0.04% | |
| GBP | 0.26% | 0.03% | 0.22% | -0.07% | -0.23% | -0.50% | -0.04% | |
| JPY | 0.03% | -0.26% | -0.22% | -0.32% | -0.45% | -0.65% | -0.32% | |
| CAD | 0.31% | 0.05% | 0.07% | 0.32% | -0.17% | -0.44% | -0.07% | |
| AUD | 0.46% | 0.27% | 0.23% | 0.45% | 0.17% | -0.24% | 0.20% | |
| NZD | 0.77% | 0.59% | 0.50% | 0.65% | 0.44% | 0.24% | 0.43% | |
| CHF | 0.33% | 0.04% | 0.04% | 0.32% | 0.07% | -0.20% | -0.43% |
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).
Meanwhile, Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari told CNBC on Tuesday that the Fed should wait for significant progress on inflation before lowering the policy rate, per Reuters. Kashkari added that the central bank could potentially even hike interest rates if inflation fails to come down further. These comments, however, failed to help the USD gather strength.
Fed officials continue to warrant caution on inflation, as eyes turn to US PCE data.
In the second half of the day, the Conference Board will release the Consumer Confidence Index for May. In case there is a significant improvement in this data, the USD could hold its ground and limit EUR/USD's upside. Later in the American session, San Francisco Fed President Mary Daly and Fed Governor Lisa Cook will be delivering speeches. In case Fed officials continue to push back against the market expectation for a rate reduction in September, the USD could find demand.
According to the CME FedWatch Tool, markets are currently pricing in a nearly 50% probability that the Fed will leave the policy rate unchanged in September.
EUR/USD Technical Analysis
EUR/USD could face stiff resistance at 1.0890-1.0900 area, where the Fibonacci 78.6% retracement of the latest downtrend and the mid-point of the ascending regression channel meet. If the pair clears that level and starts using it as support, it could target 1.0940 (upper limit of the ascending channel) and 1.0970 (beginning point of the downtrend, static level).
On the downside, supports could be seen at 1.0830 (lower limit of the ascending channel), 1.0810 (100-day Simple Moving Average) and 1.0750 (200-period Simple Moving Average on the 4-hour chart).
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.
