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EUR/USD Forecast: Euro defines near-term range before next breakout

  • EUR/USD extends sideways grind above 1.0900 on Friday.
  • Euro needs to break out of 1.0900-1.0940 range to determine next direction.
  • The economic calendar will not feature any high-impact data releases.

EUR/USD closed the second consecutive day virtually unchanged on Thursday. The pair continues to fluctuate in a tight channel above 1.0900 early Friday as investors await the next catalyst.

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 Swiss Franc.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.07%0.31%0.44%-0.98%-1.25%-1.14%0.85%
EUR0.07% 0.31%0.35%-1.03%-1.17%-1.18%0.81%
GBP-0.31%-0.31% 0.11%-1.31%-1.47%-1.48%0.51%
JPY-0.44%-0.35%-0.11% -1.37%-1.72%-1.55%0.44%
CAD0.98%1.03%1.31%1.37% -0.24%-0.16%1.66%
AUD1.25%1.17%1.47%1.72%0.24% -0.01%2.00%
NZD1.14%1.18%1.48%1.55%0.16%0.00% 2.01%
CHF-0.85%-0.81%-0.51%-0.44%-1.66%-2.00%-2.01% 

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).

EUR/USD edged lower in the early American session on Thursday after the data from the US showed that the weekly Initial Jobless Claims declined to 233,000 from 250,000. Later in the day, the US Dollar (USD) lost its strength as risk flows started to dominate the action in financial markets, allowing the pair to erase its daily losses.

The economic calendar will not offer any high-tier data releases that could influence EUR/USD's action ahead of the weekend.

Hence, investors are likely to react to changes in risk perception. At the time of press, the Euro Stoxx 50 Index was up 0.25% on the day and US stock index futures were trading marginally higher.

In case market participants start moving away from risk-sensitive assets to avoid getting caught on the back foot over the weekend, the USD could stay resilient against its rivals and make it difficult for EUR/USD to stretch higher. On the other hand, a bullish opening in Wall Street and a continuation of the risk rally could help the pair hold its ground heading into the weekend.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways slightly above 50, reflecting a lack of directional momentum. On the downside, first support is located at 1.0900 (psychological level, static level) ahead of 1.0870, where the 100-period and the 50-period Simple Moving Averages (SMA) meet the 20-day SMA, and 1.0840 (200-period SMA).

In case the pair breaks above 1.0940 (static level), technical buyers could show interest. In this scenario, 1.0960 (static level) could be seen as interim resistance before 1.1000 (psychological level, static level).

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.

Author

Eren Sengezer

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.

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