EUR/USD Forecast: Euro could correct lower if 1.1100 support fails
- EUR/USD holds above 1.1100 after closing in negative territory on Thursday.
- The near-term technical outlook points to a loss of bullish momentum.
- Fed Chairman Powell will deliver opening remarks at the Jackson Hole Symposium later in the day.
After rising for four consecutive trading days and gaining more than 1.5% in that rally, EUR/USD staged a correction in the American session on Thursday and closed the day in negative territory. The pair holds steady above 1.1100 in the European session on Friday as investors move to the sidelines while waiting for Federal Reserve (Fed) Chairman Jerome Powell to deliver opening remarks at the Jackson Hole Symposium.
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 | -0.85% | -1.36% | -1.25% | -0.67% | -0.83% | -1.75% | -1.63% | |
| EUR | 0.85% | -0.59% | -0.37% | 0.20% | -0.07% | -1.07% | -0.82% | |
| GBP | 1.36% | 0.59% | 0.06% | 0.75% | 0.52% | -0.42% | -0.23% | |
| JPY | 1.25% | 0.37% | -0.06% | 0.51% | 0.39% | -0.39% | -0.52% | |
| CAD | 0.67% | -0.20% | -0.75% | -0.51% | -0.19% | -1.01% | -1.00% | |
| AUD | 0.83% | 0.07% | -0.52% | -0.39% | 0.19% | -0.85% | -0.74% | |
| NZD | 1.75% | 1.07% | 0.42% | 0.39% | 1.01% | 0.85% | 0.14% | |
| CHF | 1.63% | 0.82% | 0.23% | 0.52% | 1.00% | 0.74% | -0.14% |
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 data from the US showed on Thursday that the economic activity in the private sector continued to expand at a robust pace in early August, with S&P Global Composite PMI's flash estimate arriving at 54.1. Later in the day, the sharp decline seen in Wall Street's main indexes helped the US Dollar (USD) preserve its strength and forced EUR/USD to stay on the back foot.
Powell's speech will start at 14:00 GMT. According to the CME FedWatch Tool, markets are currently fully pricing in a 25 basis points Fed rate cut in September and see a nearly 25% probability of a 50 bps rate reduction.
In case Powell dismisses the idea of a large rate cut in his speech, the market positioning suggests that the USD could extend its recovery. On the other hand, the USD could struggle to find demand if Powell leaves the door open to consecutive rate cuts in the remainder of the year.
EUR/USD Technical Analysis
EUR/USD trades in the lower half of its ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 60, reflecting a loss of bullish momentum.
On the downside, 1.1100 (psychological level, static level, lower limit of the ascending channel) aligns as key support. In case EUR/USD drops below this level and starts using it as resistance, technical sellers could show interest. In this scenario, 1.1060-1.1055 (50-period Simple Moving Average (SMA), former resistance, static level) could be seen as next support before 1.1000 (psychological level).
1.1155 (mid-point of the ascending channel) could be seen as first resistance ahead of 1.1200 (upper limit of the ascending channel).
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.
