EUR/USD Forecast: Euro looks for the next catalyst
- EUR/USD trades in a narrow range above 1.0850 on Tuesday.
- The near-term technical outlook points to a loss of bullish momentum.
- Several Fed policymakers are scheduled to speak later in the day.
EUR/USD declined marginally on Monday but managed to stabilize above 1.0850 early Tuesday. The pair's near-term technical outlook points to a loss of bullish momentum as investors search for the next catalyst.
The trading action remained subdued in financial markets on Monday in the absence of high-tier data releases. Although the US Dollar (USD) held resilient against its major rivals following the latest comments from Federal Reserve (Fed) officials, it failed to gather bullish momentum. Early Tuesday, the US Dollar Index fluctuates in a tight range at around 104.50.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | -0.12% | 0.36% | 0.08% | 0.36% | 0.48% | 0.06% | |
| EUR | 0.00% | -0.14% | 0.41% | 0.09% | 0.41% | 0.50% | 0.07% | |
| GBP | 0.12% | 0.14% | 0.40% | 0.24% | 0.54% | 0.63% | 0.20% | |
| JPY | -0.36% | -0.41% | -0.40% | -0.29% | 0.00% | 0.14% | -0.30% | |
| CAD | -0.08% | -0.09% | -0.24% | 0.29% | 0.23% | 0.40% | -0.03% | |
| AUD | -0.36% | -0.41% | -0.54% | -0.00% | -0.23% | 0.08% | -0.34% | |
| NZD | -0.48% | -0.50% | -0.63% | -0.14% | -0.40% | -0.08% | -0.43% | |
| CHF | -0.06% | -0.07% | -0.20% | 0.30% | 0.03% | 0.34% | 0.43% |
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).
Fed Vice Chair for Supervision Michael Barr noted that the Fed was in a good position to keep the policy steady and watch the economic developments. Additionally, "we continue to see the labor market come into better balance, and inflation decline, though nowhere near as quickly as would have liked," Fed Vice Chair of the Board of Governors Phillip Jefferson said.
In the second half of the day, Fed Governor Christopher Waller, NY Fed President John Williams and Boston Fed President Susan Collins and Cleveland Fed President Loretta Mester will be delivering speeches.
Since the release of the April inflation data, Fed policymakers adopted a cautious tone regarding policy easing but refrained from hinting at the timing of the policy pivot. Hence, markets are likely to wait for the next macroeconomic data release before reassessing the rate outlook.
The US Department of Labor's weekly Initial Jobless Claims data and S&P Global's preliminary Manufacturing and Services PMI surveys for May on Thursday could trigger the next big reaction in EUR/USD.
EUR/USD Technical Analysis
EUR/USD continues to trade within the ascending regression channel but the Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50, suggesting that the bullish bias intact while the momentum is waning.
1.0850 (mid-point of the ascending channel) aligns as immediate support before 1.0830 (50-period Simple Moving Average, Fibonacci 61.8% retracement of the latest downtrend) and 1.0810-1.0800 (lower limit of the ascending channel, static level). On the upside, first resistance is located at 1.0890 (Fibonacci 78.6% retracement) ahead of 1.0910 (upper limit of the ascending channel) and 1.0940 (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.
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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.
