EUR/USD Forecast: Euro keeps range as focus shifts to Fed policymakers
- EUR/USD stabilizes below 1.1600 in the European session on Wednesday.
- The technical picture offers no signs of a buildup in directional momentum.
- Several Fed policymakers will be delivering speeches later in the day.
After failing to make a decisive move in either direction on Tuesday, EUR/USD extends its sideways grind early Wednesday and continues to move up and down in a very narrow channel below 1.1600. The technical outlook points to a neutral stance in the near term.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.00% | 0.38% | -0.08% | -0.19% | -0.14% | 0.45% | |
| EUR | -0.16% | -0.10% | 0.24% | -0.23% | -0.48% | -0.30% | 0.29% | |
| GBP | -0.01% | 0.10% | 0.37% | -0.13% | -0.38% | -0.20% | 0.39% | |
| JPY | -0.38% | -0.24% | -0.37% | -0.45% | -0.72% | -0.53% | 0.24% | |
| CAD | 0.08% | 0.23% | 0.13% | 0.45% | -0.27% | -0.06% | 0.51% | |
| AUD | 0.19% | 0.48% | 0.38% | 0.72% | 0.27% | 0.18% | 0.77% | |
| NZD | 0.14% | 0.30% | 0.20% | 0.53% | 0.06% | -0.18% | 0.57% | |
| CHF | -0.45% | -0.29% | -0.39% | -0.24% | -0.51% | -0.77% | -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 Institute for Supply Management (ISM) reported on Tuesday that the Services Purchasing Managers' Index (PMI) declined to 50.1 in July from 50.8 in June, showing a modest expansion in the US service sector's economic activity. The Employment Index of the PMI survey fell to 46.4 from 47.2 in this period, highlighting a further decline in the sector's payrolls. Finally, the Prices Paid Index, the inflation component, climbed to 69.9 from 67.5.
The mixed PMI report failed to trigger a noticeable market reaction and the US Dollar (USD) Index ended the day flat on Tuesday.
Early Wednesday, US stock index futures gain between 0.3% and 0.4%, making it difficult for the safe-haven USD to gather strength.
Earlier in the session, the data from Germany showed Factory Orders declined by 1% on a monthly basis in June. This reading followed the 1.4% contraction recorded in May and missed analysts' estimate for an increase of 1%.
In the second half of the day, several Federal Reserve (Fed) policymakers will be delivering speeches.
According to the CME FedWatch Tool, markets are currently pricing in a nearly-90% probability of a 25 basis points Fed rate cut in September. In case Fed officials downplay the weak July employment data and push back against this market expectation, the USD could gain traction and cause EUR/USD to turn south. On the flip side, the market positioning suggests that the USD doesn't have a lot of room left on the downside even if policymakers hint at a September cut.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator moves sideways slightly above 50 and EUR/USD continues to fluctuate near the 20-period and the 50-period Simple Moving Averages (SMAs), reflecting a neutral bias.
On the downside, 1.1540 (Fibonacci 38.2% retracement of the latest uptrend) aligns as the first support level before 1.1500 (static level, round level) and 1.1450 (Fibonacci 50% retracement of the latest uptrend).
Looking north, resistance levels could be spotted at 1.1620 (100-period SMA), 1.1660 (Fibonacci 23.6% retracement, 200-period SMA) and 1.1700 (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.
