EUR/USD Forecast: Euro faces two-way risk on ECB rate decision, US data
- EUR/USD moves sideways at around 1.1700 early Thursday.
- The ECB will announce policy decisions and publish revised macroeconomic projections.
- The US economic calendar will feature August inflation data.
EUR/USD holds steady at around 1.1700 in the European session after posting losses for the second consecutive day on Wednesday. The European Central Bank's (ECB) monetary policy announcements and August inflation data from the US could ramp up the pair's volatility in the second half of the day.
Euro Price This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.17% | -0.07% | -0.30% | 0.35% | -0.84% | -0.55% | 0.12% | |
| EUR | -0.17% | -0.25% | -0.40% | 0.16% | -1.00% | -0.68% | -0.05% | |
| GBP | 0.07% | 0.25% | -0.24% | 0.41% | -0.75% | -0.43% | 0.20% | |
| JPY | 0.30% | 0.40% | 0.24% | 0.56% | -0.57% | -0.41% | 0.44% | |
| CAD | -0.35% | -0.16% | -0.41% | -0.56% | -1.08% | -0.85% | -0.22% | |
| AUD | 0.84% | 1.00% | 0.75% | 0.57% | 1.08% | 0.32% | 0.96% | |
| NZD | 0.55% | 0.68% | 0.43% | 0.41% | 0.85% | -0.32% | 0.64% | |
| CHF | -0.12% | 0.05% | -0.20% | -0.44% | 0.22% | -0.96% | -0.64% |
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).
Despite the softer-than-forecast producer inflation data from the US, the cautious market mood helped the US Dollar (USD) hold its ground and caused EUR/USD to stretch lower.
Following the September policy meeting, the ECB is widely anticipated to leave key rates unchanged. Revised macroeconomic projections and ECB President Christine Lagarde's comments in the post-meeting press conference could influence the Euro's valuation.
In case Lagarde suggests that they will consider rate cuts again, citing steady inflation and intensifying downside risks to the growth outlook, the immediate reaction could cause the Euro to weaken. Conversely, EUR/USD could gain traction if Lagarde puts more emphasis on the inflation outlook and adopts an optimistic tone about the economic conditions.
Meanwhile, investors will also assess August Consumer Price Index (CPI) data from the US. Even if the immediate reaction to the ECB event supports the Euro, EUR/USD could have a difficult time gathering bullish momentum in case the monthly core CPI rises at a stronger pace than the market expectation of 0.3%. On the other hand, an increase of less than forecast in this data could weigh on the USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50 and EUR/USD trades below the 20-period Simple Moving Average (SMA), highlighting a lack of buyer interest.
On the downside, the 1.1670-1.1660 area, where the 20-day and the 50-day Simple Moving Averages (SMAs) are located, aligns as a key support level before 1.1640-1.1630 (200-period SMA, lower limit of the ascending regression channel) and 1.1600 (static level, round level).
Looking north, resistance levels could be seen at 1.1720 (20-period SMA), 1.1760 (static level, round level) and 1.1790-1.1800 (upper limit of the ascending channel, static 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.
