EUR/USD Forecast: Euro could struggle to build on weekly gains after weak PMI data
- EUR/USD trades in a tight range above 1.1300 on Thursday.
- The business activity in Germany's and the Eurozone's private sector contracted in May.
- The pair remains technically bullish in the near term.
EUR/USD seems to have entered a consolidation phase above 1.1300 on Thursday after closing in positive territory for three consecutive days. The pair's near-term technical outlook suggests that the bullish bias remains intact but the Euro could struggle to gather strength following the Purchasing Managers Index (PMI) data.
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 | -1.12% | -1.01% | -1.47% | -0.81% | -0.69% | -0.79% | -1.35% | |
| EUR | 1.12% | 0.09% | -0.29% | 0.38% | 0.57% | 0.40% | -0.22% | |
| GBP | 1.01% | -0.09% | -0.69% | 0.29% | 0.48% | 0.31% | -0.31% | |
| JPY | 1.47% | 0.29% | 0.69% | 0.65% | 0.94% | 0.88% | 0.17% | |
| CAD | 0.81% | -0.38% | -0.29% | -0.65% | 0.14% | 0.02% | -0.60% | |
| AUD | 0.69% | -0.57% | -0.48% | -0.94% | -0.14% | -0.17% | -0.77% | |
| NZD | 0.79% | -0.40% | -0.31% | -0.88% | -0.02% | 0.17% | -0.62% | |
| CHF | 1.35% | 0.22% | 0.31% | -0.17% | 0.60% | 0.77% | 0.62% |
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).
HCOB Composite PMI in Germany slumped to 48.6 in May's flash estimate from 50.1 in April, while the HCOB Composite PMI for the Eurozone declined to 49.5 from 50.4 in the same period, pointing to a contraction in the private sector's business activity.
Assesing the survey's findings, "May’s snapshot is not pretty. Looking ahead, companies are only cautiously optimistic. The expectations index is still well below its long-term average," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB). "For the European Central Bank (ECB), these numbers are likely to leave it with mixed feelings."
ECB officials have been refraining from confirming a rate cut in June lately. The weak PMI data could cause markets to reassess the possibility of further policy easing next month, making it difficult for the Euro to stay resilient against its peers.
In the second half of the day, the US economic calendar will feature S&P Global PMI data for May. In case the Composite PMI comes in above 50 and shows an ongoing expansion, the USD could gather strength with the immediate reaction and cause EUR/USD to stretch lower.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 60 and EUR/USD continues to trade above the 20-period, 50-period, 100-period and 200-period Simple Moving Averages (SMA), suggesting that the bullish bias remains intact but lacks momentum.
On the upside, immediate resistance is located at 1.1340 (static level) before 1.1380 (Fibonacci 23.6% retracement of the latest uptrend) and 1.1430 (static level). Looking south, supports could be spotted at 1.1270 (Fibonacci 38.2% retracement, 100-period SMA, 200-period SMA), 1.1200 (static level, round level) and 1.1180 (Fibonacci 50% 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.
