EUR/USD Forecast: Euro could turn south on a dovish ECB tone
- EUR/USD fluctuates in a tight range slightly above 1.1400 on Thursday.
- The ECB will announce monetary policy decision after the June meeting.
- The technical outlook suggests that the bullish bias remains intact but lacks momentum.
Following Tuesday's decline, EUR/USD gained traction and closed in positive territory on Wednesday. The pair stays in a consolidation phase above 1.1400 on Thursday as investors gear up for the European Central Bank (ECB) policy announcements.
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 | -0.59% | -0.77% | -0.39% | -0.52% | -1.04% | -1.22% | -0.40% | |
| EUR | 0.59% | -0.19% | 0.18% | 0.06% | -0.45% | -0.68% | 0.17% | |
| GBP | 0.77% | 0.19% | 0.41% | 0.25% | -0.26% | -0.49% | 0.36% | |
| JPY | 0.39% | -0.18% | -0.41% | -0.13% | -0.64% | -0.86% | -0.10% | |
| CAD | 0.52% | -0.06% | -0.25% | 0.13% | -0.50% | -0.73% | 0.11% | |
| AUD | 1.04% | 0.45% | 0.26% | 0.64% | 0.50% | -0.16% | 0.71% | |
| NZD | 1.22% | 0.68% | 0.49% | 0.86% | 0.73% | 0.16% | 0.85% | |
| CHF | 0.40% | -0.17% | -0.36% | 0.10% | -0.11% | -0.71% | -0.85% |
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 disappointing macroeconomic data releases from the US weighed on the US Dollar (USD) midweek and helped EUR/USD hold its ground.
The monthly data published by the Automatic Data Processing (ADP) showed employment in the US' private sector rose by 37,000 in May, missing the market expectation of 115,000 by a wide margin. Additionally, the Institute for Supply Management's (ISM) Services Purchasing Managers Index (PMI) declined to 49.9 in May from 51.6 in April.
Later in the session, the ECB is widely expected to lower key rates by 25 basis points (bps). Alongside the policy statement, the ECB will also publish the revised staff projections.
A negative revision to inflation forecasts could be seen as a sign pointing to additional rate cuts in the near term and weigh on the Euro with the immediate reaction. On the other hand, markets could reassess the ECB's policy-easing prospects if the publication shows that ECB officials project economic growth alongside stronger inflation. Later, ECB President Christine Lagarde will deliver her prepared remarks and respond to questions in the post-meeting press conference.
Meanwhile, the US economic calendar will feature weekly Initial Jobless Claims data. A reading above the previous week's 240,000 could make it difficult for the US Dollar (USD) to find demand and help EUR/USD stretch higher. Ahead of Friday's highly-anticipated Nonfarm Payrolls data, however, the impact of this data on the USD's valuation could remain short-lived.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways slightly above 50, suggesting that the bullish bias remains intact but lacks strength.
Looking north, resistance levels could be seen at 1.1450 (static level), 1.1500 (static level, round level) and 1.1575 (April 21 high). On the downside, supports align at 1.1380 (Fibonacci 23.6% retracement of the latest uptrend), 1.1320 (100-period Simple Moving Average (SMA), 200-period SMA) and 1.1260 (Fibonacci 38.2% 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.
