EUR/USD Forecast: Euro extends sideways grind ahead of next breakout
- EUR/USD trades in a narrow range below 1.1900 on Monday.
- The pair's trading action is likely to remain subdued in the short term.
- The near-term technical outlook highlights a lack of directional momentum.
EUR/USD fluctuates in a narrow channel below 1.1900 in the European session on Monday after posting small gains in the previous week. The pair's trading action is likely to remain subdued in the short term, with stock and bond markets in the US remaining closed in observance of the Presidents Day holiday.
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 strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.41% | -0.39% | -2.53% | -0.39% | -1.05% | -0.43% | -0.97% | |
| EUR | 0.41% | 0.02% | -2.17% | 0.02% | -0.64% | -0.03% | -0.56% | |
| GBP | 0.39% | -0.02% | -1.91% | -0.01% | -0.67% | -0.05% | -0.59% | |
| JPY | 2.53% | 2.17% | 1.91% | 2.24% | 1.56% | 2.20% | 1.53% | |
| CAD | 0.39% | -0.02% | 0.00% | -2.24% | -0.56% | -0.03% | -0.58% | |
| AUD | 1.05% | 0.64% | 0.67% | -1.56% | 0.56% | 0.62% | 0.07% | |
| NZD | 0.43% | 0.03% | 0.05% | -2.20% | 0.03% | -0.62% | -0.54% | |
| CHF | 0.97% | 0.56% | 0.59% | -1.53% | 0.58% | -0.07% | 0.54% |
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).
Soft inflation data from the US made it difficult for the US Dollar (USD) to gather strength heading into the weekend and allowed EUR/USD to hold its ground. The US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 2.4% on a yearly basis in January, following the 2.7% increase recorded in December. This print came in below the market expectation of 2.5%. On a monthly basis, the CPI and the core CPI, which excludes volatile food and energy prices, increased 0.2% and 0.3%, respectively.
In the second half of the day, European Central Bank (ECB) policymaker Joachim Nagel will be delivering a speech.
Meanwhile, the ECB announced over the weekend that they are planning to widen the global access to the Euro liquidity backstop to boost the Euro's global role, by making it easier for foreign central banks to secure funding in Euros at times of financial stress.
Rabobank analysts pointed out some potential issues with this decision. "The key issues are: (1) is the supply of Euros globally an issue or the demand for them?; (2) it implies a much larger number of Euro-denominated assets and a much larger European trade deficit; and (3) a much higher Euro exchange rate, which wouldn’t be welcome in all member states to put it mildly," they explained.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways slightly below 50 and EUR/USD fluctuates at around the 20-period, 50-period and 100-period SMAs, reflecting the pair's indecisiveness.
The Fibonacci 38.2% retracement of the latest uptrend, the 100-period SMA and the 50-period SMA form a pivot area in 1.1850-1.1860. In case EUR/USD stabilizes above this region, technical buyers could remain interested. In this case, 1.1900 (static level, round level) could be seen as an interim resistance level before 1.1925 (Fibonacci 23.6% retracement).
Looking south, support levels could be spotted at 1.1810-1.1800 (Fibonacci 50% retracement, static level) and 1.1770 (200-period SMA).
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
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.
