EUR/USD Forecast: Euro could push higher once it clears 1.0440
- EUR/USD moves up and down above 1.0440 on Wednesday.
- Dovish comments from ECB officials limit the Euro's gains.
- The pair could attract technical sellers if it manages to stabilize above 1.0440.
After rising to the 1.0450 area earlier in the session, EUR/USD lost its bullish momentum and erased its daily gains. Nevertheless, the pair holds comfortably above 1.0400, while the technical shows the bullish bias remains unchanged in the near term.
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 | -1.50% | -1.42% | -0.22% | -0.76% | -1.47% | -1.46% | -0.76% | |
| EUR | 1.50% | 0.02% | 1.19% | 0.65% | 0.09% | -0.07% | 0.63% | |
| GBP | 1.42% | -0.02% | 1.12% | 0.62% | 0.08% | -0.10% | 0.61% | |
| JPY | 0.22% | -1.19% | -1.12% | -0.53% | -1.20% | -1.34% | -0.71% | |
| CAD | 0.76% | -0.65% | -0.62% | 0.53% | -0.66% | -0.71% | -0.01% | |
| AUD | 1.47% | -0.09% | -0.08% | 1.20% | 0.66% | -0.25% | 0.47% | |
| NZD | 1.46% | 0.07% | 0.10% | 1.34% | 0.71% | 0.25% | 0.52% | |
| CHF | 0.76% | -0.63% | -0.61% | 0.71% | 0.01% | -0.47% | -0.52% |
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 improving risk mood made it difficult for the US Dollar (USD) to find demand in the European session and helped EUR/USD hold its ground. Dovish comments from European Central Bank (ECB) officials, however, seem to be limiting the Euro's upside ahead of next week's policy meeting.
ECB policymaker José Luis Escrivá said on Wednesday that a 25 basis points (bps) cut next week is a likely scenario. "Incoming information points towards converging to 2% inflation goal," Escrivá added. Moreover, ECB policymaker Francois Villeroy de Galhau noted that the disinflation process is still on track and said that there could be a decoupling between the ECB and the Federal Reserve on rates.
The US economic calendar will not offer any key data releases on Wednesday. Later in the day, ECB President Christine Lagarde will participate in the dialogue 'Beyond Crisis: Unlocking Europe's Potential' at the World Economic Forum in Davos.
Meanwhile, US stock index futures were last seen rising between 0.3% and 1%. A bullish opening in Wall Street could cause the USD to stay under pressure and allow EUR/USD to regain its traction.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart retreated slightly after touching 70, suggesting that the bullish bias remains intact, with a potential for a technical correction. On the upside, 1.0440 (Fibonacci 61.8% retracement of the latest downtrend, 50-day SMA) aligns as key resistance before 1.0500 (round level, Fibonacci 78.6% retracement) and 1.0545 (static level).
Looking south, a strong support area seems to have formed at 1.0390-1.0400, where the 200-period Simple Moving Average (SMA) meets the Fibonacci 50% retracement, before 1.0350 (Fibonacci 38.2% retracement) and 1.0320 (100-period SMA).
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.
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.
