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EUR/USD Forecast: Euro could look to reclaim 1.1000 on improving risk mood

  • EUR/USD edges higher toward 1.1000 after posting losses on Thursday.
  • The pair could push higher in case risk flows dominate markets ahead of the weekend.
  • The US economic docket will feature consumer sentiment and housing data.

EUR/USD regains its traction and rises toward 1.1000 in the European session on Friday after snapping a three-day winning streak on Thursday.

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.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.64%-0.97%1.41%-0.09%-0.81%-0.25%0.40%
EUR0.64% -0.30%2.06%0.55%-0.29%0.39%1.06%
GBP0.97%0.30% 2.63%0.86%0.01%0.69%1.35%
JPY-1.41%-2.06%-2.63% -1.47%-2.26%-1.64%-1.04%
CAD0.09%-0.55%-0.86%1.47% -0.77%-0.16%0.50%
AUD0.81%0.29%-0.01%2.26%0.77% 0.68%1.34%
NZD0.25%-0.39%-0.69%1.64%0.16%-0.68% 0.65%
CHF-0.40%-1.06%-1.35%1.04%-0.50%-1.34%-0.65% 

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 upbeat macroeconomic data releases from the US provided a boost to the US Dollar (USD) and caused EUR/USD to turn south. The US Department of Labor reported that the weekly Initial Jobless Claims declined by 7,000 to 227,000 in the week ending August 9. Other data from the US showed that Retail Sales rose 1% on a monthly basis in July, beating the market expectation for an increase of 0.3%.

Early Friday, the improving risk mood makes it difficult for the USD to build on Thursday's gains and helps EUR/USD stretch higher.

The US economic docket will feature Housing Starts and Building Permits data for July. Additionally, the University of Michigan will release the preliminary Consumer Sentiment Index data for August. The market reaction to these data is likely to remain short-lived.

Meanwhile, US stock index futures are up between 0.2% and 0.3% in the European session. In case Wall Street's main indexes open in positive territory and continue to push higher ahead of the weekend, the USD could stay on the back foot and open the door for another leg higher in the pair.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart started to rise toward 60 after falling to 50 on Thursday, reflecting sellers' hesitancy. On the upside, 1.1000 (psychological level, static level) aligns as immediate resistance ahead of 1.1050-1.1060 (static level) and 1.1100 (psychological level, static level).

Supports could be seen at 1.0960 (static level), 1.0940 (static level) and 1.0900 (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

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.

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