EUR/USD Forecast: Euro holds ground while waiting for next catalyst
- EUR/USD extends its sideways grind above 1.0400 in the early American session on Thursday.
- The mixed action seen in Wall Street helps the US Dollar stay resilient against its rivals.
- Preliminary January Manufacturing and Services PMI data on Friday could help the pair find direction.
EUR/USD continues to move up and down in a narrow channel above 1.0400 in the American session on Thursday. The pair's technical outlook suggests that the bullish bias remains intact, while lacking momentum.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.31% | -1.25% | 0.06% | -0.61% | -1.29% | -1.31% | -0.55% | |
| EUR | 1.31% | -0.01% | 1.29% | 0.60% | 0.07% | -0.11% | 0.64% | |
| GBP | 1.25% | 0.01% | 1.21% | 0.60% | 0.10% | -0.11% | 0.65% | |
| JPY | -0.06% | -1.29% | -1.21% | -0.68% | -1.30% | -1.46% | -0.79% | |
| CAD | 0.61% | -0.60% | -0.60% | 0.68% | -0.61% | -0.70% | 0.05% | |
| AUD | 1.29% | -0.07% | -0.10% | 1.30% | 0.61% | -0.28% | 0.48% | |
| NZD | 1.31% | 0.11% | 0.11% | 1.46% | 0.70% | 0.28% | 0.57% | |
| CHF | 0.55% | -0.64% | -0.65% | 0.79% | -0.05% | -0.48% | -0.57% |
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 data from the US showed on Thursday that the weekly Initial Jobless Claims rose to 223,000 in the week ending January 18 from 217,000 in the previous week. This reading came in above the market expectation of 220,000 and limited the US Dollar's gains, in turn helping EUR/USD find support.
Meanwhile, Wall Street's main indexes trade mixed following the opening bell, reflecting a cautious market stance ahead of US President Donald Trump's speech at the World Economic Forum in Davos. At the time of press, the Dow Jones Industrial Average was up 0.2%, while the Nasdaq Composite was down 0.5%.
In case safe-haven flows dominate the action following Trump's remarks, EUR/USD could have a hard time regaining its traction.
On Friday, S&P Global will publish the preliminary January Manufacturing and Services Purchasing Managers Index (PMI) data for Germany, the Eurozone and the US.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) moves sideways above 50, suggesting that the bullish bias remains unchanged but it's struggling to gather momentum. EUR/USD faces key support level at 1.0390, where the 200-period Simple Moving Average (SMA) meets the Fibonacci 50% retracement of the latest downtrend. A daily close below this level could attract technical sellers and open the door for an extended decline toward 1.0350 (Fibonacci 38.2% retracement) and 1.0320 (100-period SMA).
On the upside, first resistance could be spotted at 1.0440 (Fibonacci 61.8% retracement, 50-day SMA) ahead of 1.0500 (round level, Fibonacci 78.6% retracement).
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.
