EUR/USD Forecast: Euro could break out of range after Fed
- EUR/USD consolidates this week's gains, trades above 1.1350.
- The Fed is widely anticipated to leave policy settings unchanged after the May meeting.
- The pair could attract bulls if it clears the resistance level at 1.1380.
EUR/USD seems to have entered a consolidation phase above 1.1350 in the European session on Wednesday after closing in positive territory on Tuesday. The Federal Reserve's (Fed) policy announcements could trigger the next big action in the pair.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.21% | -0.56% | -0.93% | -0.03% | -0.26% | -0.72% | 0.02% | |
| EUR | 0.21% | -0.08% | -0.46% | 0.44% | 0.21% | -0.24% | 0.50% | |
| GBP | 0.56% | 0.08% | -0.61% | 0.52% | 0.29% | -0.16% | 0.57% | |
| JPY | 0.93% | 0.46% | 0.61% | 0.92% | 0.69% | 0.31% | 1.08% | |
| CAD | 0.03% | -0.44% | -0.52% | -0.92% | -0.53% | -0.68% | 0.06% | |
| AUD | 0.26% | -0.21% | -0.29% | -0.69% | 0.53% | -0.46% | 0.29% | |
| NZD | 0.72% | 0.24% | 0.16% | -0.31% | 0.68% | 0.46% | 0.73% | |
| CHF | -0.02% | -0.50% | -0.57% | -1.08% | -0.06% | -0.29% | -0.73% |
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) struggled to find demand on Tuesday and allowed EUR/USD to stretch higher. In the absence of high-tier data releases, the risk-averse market atmosphere made it difficult for the USD to stay resilient against its rivals.
Meanwhile, Bloomberg reported that the European Union (EU) was planning to target about €100 billion worth of United States (US) imports with additional tariffs if they fail to reach a deal with the US. On a positive note, Washington officially confirmed that Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's economic tsar He Lifeng in Geneva this Saturday. Although this development helps the USD find support, EUR/USD's action remains relatively subdued.
Later in the American session, the Fed is widely anticipated to leave the policy rate unchanged at 4.25%-4.5%. The statement language and Chairman Jerome Powell's comments in the post-meeting press conference could drive EUR/USD's action.
In case Powell reiterates that they will need more time to assess the impact of tariffs on the inflation outlook and remain patient with regard to policy-easing, the immediate reaction could support the USD and cause EUR/USD to turn south. On the flip side, the USD could come under renewed selling pressure if Powell acknowledges heightened risk of an economic downturn and notes worsening conditions in the labor market.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 50 but EUR/USD is yet to pull away from the 20-period, 50-period and 100-period Simple Moving Averages (SMA), pointing to a lack of directional momentum.
On the upside, the 100-period SMA and the Fibonacci 23.6% retracement of the latest uptrend form a strong resistance at 1.1380 ahead of 1.1430 (static level) and 1.1500 (static level, round level). Supports could be seen at 1.1270 (Fibonacci 38.2% retracement), 1.1175 (Fibonacci 50% retracement) and 1.1080 (Fibonacci 61.8% 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.
