EUR/USD Forecast: Euro could struggle to gather further bullish momentum
- EUR/USD trades in positive territory near 1.0400 early Wednesday.
- The risk-averse market atmosphere could limit the pair's upside.
- The US economic calendar will feature ADP Employment Change and ISM Services PMI data.
EUR/USD edges higher and trades near1.0400 after posting modest daily gains on Tuesday. Although the near-term technical outlook points to a bullish tilt, the risk-averse market atmosphere could make it difficult for the pair to continue to push higher.
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.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.35% | -0.84% | -1.21% | -2.79% | -1.02% | -1.45% | -1.32% | |
| EUR | 0.35% | -0.11% | 0.45% | -1.18% | -0.23% | 0.18% | 0.32% | |
| GBP | 0.84% | 0.11% | -0.54% | -1.08% | -0.11% | 0.29% | 0.42% | |
| JPY | 1.21% | -0.45% | 0.54% | -1.61% | 0.33% | 0.69% | 0.51% | |
| CAD | 2.79% | 1.18% | 1.08% | 1.61% | 0.71% | 1.38% | 1.51% | |
| AUD | 1.02% | 0.23% | 0.11% | -0.33% | -0.71% | 0.40% | 0.54% | |
| NZD | 1.45% | -0.18% | -0.29% | -0.69% | -1.38% | -0.40% | 0.13% | |
| CHF | 1.32% | -0.32% | -0.42% | -0.51% | -1.51% | -0.54% | -0.13% |
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) came under selling pressure in the American session on Tuesday after the US Bureau of Labor Statistics reported that JOLTS Job Openings declined to 7.6 million in December, falling short of the market expectation of 8 million. In the meantime, the rebound in US equity indexes put additional weight on the USD's shoulders, helping EUR/USD gather recovery momentum.
Early Wednesday, US stock index futures are down between 0.2% and 0.7%, reflecting a cautious market stance. In case safe-haven flows dominate the action in financial markets in the second half of the day, the USD could stay resilient against its rivals.
The US economic calendar will feature ADP Employment Change and the ISM Services PMI data for January. Markets expect payrolls in the private sector to rise by 150,000, up from 122,000 in December. A disappointing reading, at or below 100,000, could hurt the USD with the immediate reaction.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50 and EUR/USD closed the last three 4-hour candles above the 100-period and 200-period Simple Moving Averages (SMA), highlighting sellers' hesitancy.
If EUR/USD manages to stabilize above 1.0400 (Fibonacci 50% retracement of the latest downtrend), 1.0440 (Fibonacci 61.8% retracement) could be seen as next resistance before 1.0500 (round level, static level). On the downside, 1.0375-1.0365 (200-period SMA, 100-period SMA) aligns as first support area before 1.0350 (Fibonacci 38.2% retracement) and 1.0290-1.0300 (Fibonacci 23.6% retracement, round level).
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.
