EUR/USD Forecast: Euro could gather recovery momentum on a soft US NFP reading
- EUR/USD stabilizes near 1.0800 after recovering from multi-week lows.
- Safe-haven flows dominate the action in financial markets on Friday.
- Nonfarm Payrolls in the US are forecast to rise 175,000 in July.
EUR/USD failed to build on Wednesday recovery gains and dropped to a fresh multi-week low of 1.0777 on Thursday. Early Friday, the pair holds slightly above 1.0800 as investors await July jobs report from the US.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | 1.11% | -3.04% | 0.35% | 0.57% | -0.91% | -1.33% | |
| EUR | -0.44% | 0.62% | -3.50% | -0.08% | 0.16% | -1.36% | -1.75% | |
| GBP | -1.11% | -0.62% | -4.12% | -0.72% | -0.45% | -1.96% | -2.36% | |
| JPY | 3.04% | 3.50% | 4.12% | 3.48% | 3.77% | 2.21% | 1.81% | |
| CAD | -0.35% | 0.08% | 0.72% | -3.48% | 0.25% | -1.28% | -1.65% | |
| AUD | -0.57% | -0.16% | 0.45% | -3.77% | -0.25% | -1.49% | -1.91% | |
| NZD | 0.91% | 1.36% | 1.96% | -2.21% | 1.28% | 1.49% | -0.40% | |
| CHF | 1.33% | 1.75% | 2.36% | -1.81% | 1.65% | 1.91% | 0.40% |
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) gathered strength against its rivals on Thursday as safe-haven flows dominated the financial markets, causing EUR/USD to push lower. In the European morning on Friday, US stock index futures are down between 0.7% and 1.8%, pointing to a risk-averse market atmosphere.
Nonfarm Payrolls (NFP) in the US are forecast to rise 175,000 in July, following the 206,000 increase recorded in June. In case the NFP disappoints, with a reading below 150,000, the immediate market reaction could cause the USD to come under renewed bearish pressure and allow EUR/USD to stretch higher. Nevertheless, the pair's upside could remain capped unless there is a noticeable improvement in risk mood.
On the other hand, a positive surprise could provide an additional boost heading into the weekend and drag EUR/USD to fresh multi-week lows.
According to the CME FedWatch Tool, markets are currently fully pricing in 75 basis points (bps) rate reduction this year, while seeing a 35% probability of a 100 bps cut. Investors could reassess the rate outlook if the data suggest that labor market conditions remain tight.
EUR/USD Technical Analysis
EUR/USD faces a strong resistance area at 1.0810-1.0820, where the descending trend line meets the 200-day Simple Moving Average (SMA). In case the pair manages to stabilize above this level and starts using it as support, 1.0850 (20-day SMA) could be seen as the next resistance before 1.0880 (Fibonacci 23.6% retracement level of the latest uptrend).
On the downside, 1.0780 (Fibonacci 61.8% retracement) aligns as first support before 1.0740 (Fibonacci 78.6% retracement) and 1.0700 (psychological level, static level).
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.
