EUR/USD Forecast: Euro could struggle to find direction
- EUR/USD holds steady near 1.0850 in the European morning on Monday.
- US markets will remain closed in observance of the Memorial Day holiday.
- The near-term technical outlook fails to offer directional clues.
EUR/USD gained traction and closed in positive territory on Friday. The pair, however, registered losses for the week and snapped a five-week winning streak. Early Monday, the pair holds steady at around 1.0850.
In the absence of high-tier macroeconomic data releases on Friday, profit-taking and week-end flows seemingly caused the US Dollar (USD) to weaken against its rivals. Additionally, the recovery seen in Wall Street's main indexes made it difficult for the USD to benefit from safe-haven demand.
Euro PRICE Last 7 days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | -0.27% | 0.83% | 0.35% | 0.88% | 0.09% | 0.65% | |
| EUR | -0.21% | -0.49% | 0.68% | 0.14% | 0.70% | -0.09% | 0.46% | |
| GBP | 0.27% | 0.49% | 1.04% | 0.65% | 1.20% | 0.38% | 0.95% | |
| JPY | -0.83% | -0.68% | -1.04% | -0.51% | 0.04% | -0.73% | -0.17% | |
| CAD | -0.35% | -0.14% | -0.65% | 0.51% | 0.49% | -0.25% | 0.31% | |
| AUD | -0.88% | -0.70% | -1.20% | -0.04% | -0.49% | -0.82% | -0.25% | |
| NZD | -0.09% | 0.09% | -0.38% | 0.73% | 0.25% | 0.82% | 0.56% | |
| CHF | -0.65% | -0.46% | -0.95% | 0.17% | -0.31% | 0.25% | -0.56% |
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 Germany showed early Monday that the IFO Business Climate Index declined to 89.3 in May from 89.4 in April. The Current Assessment Index edged lower to 88.3 from 88.9 in the same period. These figures failed to trigger a noticeable market reaction.
Financial markets in the US will remain closed in observance of the Memorial Day holiday on Monday.
The US economic docket will feature Consumer Confidence data for May on Tuesday. Later in the week, inflation data from Germany, the Eurozone and the Personal Consumption Expenditures (PCE) Price Index data from the US will be watched closely by market participants.
EUR/USD Technical Analysis
EUR/USD remains within the ascending regression channel coming from mid-April. The Relative Strength Index (RSI) indicator on the 4-hour chart, however, stays flat slightly above 50, suggesting that the pair is yet to gather bullish momentum.
On the upside, 1.0870 (mid-point of the ascending channel) aligns as first resistance before 1.0890-1.0900 (Fibonacci 78.6% retracement of the latest downtrend, psychological level) and 1.0940 (static level). Supports for EUR/USD could be seen at 1.0825 (lower limit of the ascending channel), 1.0810-1.0800 (100-day Simple Moving Average (SMA), 20-day SMA, Fibonacci 50% retracement) and 1.0750 (200-period SMA on the 4-hour chart).
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.
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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.
