EUR/USD Forecast: Euro falls below key support ahead of data releases
- EUR/USD came under renewed bearish pressure and dropped below 1.1100.
- German inflation data and US GDP revision will be featured in the economic calendar.
- The near-term technical outlook points to a buildup of bearish momentum.
EUR/USD lost more than 0.5% on Wednesday and continued to stretch lower early Thursday. At the time of press, the pair was trading at its lowest level in over a week below 1.1100.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.99% | 0.26% | 0.16% | -0.29% | -0.17% | -0.78% | -0.39% | |
| EUR | -0.99% | -0.77% | -0.80% | -1.26% | -1.23% | -1.74% | -1.34% | |
| GBP | -0.26% | 0.77% | -0.15% | -0.55% | -0.47% | -1.05% | -0.63% | |
| JPY | -0.16% | 0.80% | 0.15% | -0.44% | -0.25% | -0.73% | -0.45% | |
| CAD | 0.29% | 1.26% | 0.55% | 0.44% | 0.13% | -0.43% | -0.09% | |
| AUD | 0.17% | 1.23% | 0.47% | 0.25% | -0.13% | -0.52% | -0.12% | |
| NZD | 0.78% | 1.74% | 1.05% | 0.73% | 0.43% | 0.52% | 0.40% | |
| CHF | 0.39% | 1.34% | 0.63% | 0.45% | 0.09% | 0.12% | -0.40% |
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 regional inflation readings from Germany weigh on the Euro during the European trading hours. Monthly Consumer Price Index (CPI) in North Rhine Westphalia and Bavaria declined 0.1% in August, while it fell 0.2% in Brandenburg and Saxony. After seeing these figures, investors are unlikely to react to country-wide CPI data from Germany later in the session.
The US Bureau of Economic Analysis will release the second estimate of the annualized Gross Domestic Product (GDP) growth for the second quarter, which is expected to come in at 2.8% to match the first estimate. Unless there is a noticeable revision in either direction, market participants could ignore this data and react to the weekly Initial Jobless Claims reading.
Investors forecast the number of first-time application for unemployment benefits to hold steady at 232,000 in the week ending August 26. A significant decline in this data, with a print of 220,000 or lower, could provide an additional boost to the US Dollar (USD) in the early American session. On the other hand, an unexpected increase toward 250,000 could revive concerns over loosening conditions in the labor market and hurt the USD, helping EUR/USD stage a rebound.
EUR/USD Technical Analysis
EUR/USD broke below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 40, reflecting a buildup of bearish momentum. The 100-period Simple Moving Average (SMA) and the Fibonacci 38.2% retracement of the latest uptrend form the first support at 1.1050 before 1.1000 (Fibonacci 50% retracement, psychological level) and 1.0960 (200-period SMA).
On the upside, 1.1100 (lower limit of the ascending channel, Fibonacci 23.6% retracement) aligns as first resistance. In case the pair returns within the ascending channel by stabilizing above this level, 1.1160 (static level) could be seen as next resistance before 1.1200 (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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
