EUR/USD Forecast: Euro holds above key support, eyes on US data
- EUR/USD trades above 1.1650 in the European session on Friday.
- July PCE inflation data will be featured in the US economic calendar.
- Month-end flows could ramp up market volatility toward the end of the European session.
After gaining about 0.4% on Thursday, EUR/USD seems to have entered a consolidation phase above 1.1650 in the European session on Friday. Investors await key July inflation data from the US.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | 0.27% | 0.09% | -0.60% | -0.67% | -0.46% | -0.13% | |
| EUR | -0.44% | -0.17% | -0.39% | -1.03% | -1.03% | -0.90% | -0.57% | |
| GBP | -0.27% | 0.17% | -0.38% | -0.86% | -0.92% | -0.72% | -0.40% | |
| JPY | -0.09% | 0.39% | 0.38% | -0.64% | -0.74% | -0.48% | -0.11% | |
| CAD | 0.60% | 1.03% | 0.86% | 0.64% | -0.06% | 0.17% | 0.47% | |
| AUD | 0.67% | 1.03% | 0.92% | 0.74% | 0.06% | 0.21% | 0.50% | |
| NZD | 0.46% | 0.90% | 0.72% | 0.48% | -0.17% | -0.21% | 0.33% | |
| CHF | 0.13% | 0.57% | 0.40% | 0.11% | -0.47% | -0.50% | -0.33% |
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 risk-positive market atmosphere made it difficult for the US Dollar (USD) to attract buyers on Thursday and allowed EUR/USD to edge higher. The pair's upside, however, remain capped as the upbeat data releases from the US helped the USD find support.
The US Bureau of Economic Analysis (BEA) announced that it revised the annualized Gross Domestic Product (GDP) growth for the second quarter to 3.3% from 3% in its initial estimate. Additionally, weekly Initial Jobless Claims declined to 229,000 from 234,000 in the previous week.
Later in the day, the BEA will publish the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for July.
Markets expect the core PCE Price Index, which excludes volatile food and energy prices, to rise by 0.3% on a monthly basis. A reading of 0.5%, or higher, could cause investors to reassess the probability of a Fed rate cut in September and boost the USD with the immediate reaction. On the other hand, EUR/USD could hold its ground with print at or below the market expectation.
It's worth noting that month-end flows on the last trading day of August could ramp up market volatility and cause irregular action in EUR/USD toward the end of the European session.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds slightly above 50 and EUR/USD continues to trade above the 100-period and 200-period Simple Moving Averages (SMAs). On the upside, 1.1700 (static level, round level) aligns as the next resistance level before 1.1730 (static level) and 1.1760 (static level).
Looking south, support levels could be spotted at 1.1655 (100-period SMA), 1.1635 (200-period SMA) and 1.1600 (static level, round 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.
