EUR/USD Forecast: Euro looks to extend technical rebound
- EUR/USD trades in positive territory above 1.1200 in the European session
- The technical outlook points to a buildup of bullish momentum.
- Investors will scrutinize comments from central bankers on Wednesday.
EUR/USD gathered bullish momentum and rose about 0.9% on Tuesday, erasing a large portion of Monday's losses in the process. The pair stays in positive territory above 1.1200 in the European session on Wednesday and the technical outlook suggests that buyers could look to retain control 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 | 0.07% | -0.30% | 0.04% | 0.12% | -1.25% | -0.62% | 0.17% | |
| EUR | -0.07% | -0.23% | 0.58% | 0.54% | -0.69% | -0.20% | 0.58% | |
| GBP | 0.30% | 0.23% | 0.98% | 0.78% | -0.45% | -0.04% | 0.82% | |
| JPY | -0.04% | -0.58% | -0.98% | 0.06% | -1.92% | -1.50% | -0.11% | |
| CAD | -0.12% | -0.54% | -0.78% | -0.06% | -1.11% | -0.74% | 0.04% | |
| AUD | 1.25% | 0.69% | 0.45% | 1.92% | 1.11% | 0.40% | 1.26% | |
| NZD | 0.62% | 0.20% | 0.04% | 1.50% | 0.74% | -0.40% | 0.76% | |
| CHF | -0.17% | -0.58% | -0.82% | 0.11% | -0.04% | -1.26% | -0.76% |
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 US Dollar (USD) came under selling pressure after soft inflation data on Tuesday and allowed EUR/USD to stage a decisive rebound. The US Bureau of Labor Statistics reported that annual inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 2.3% in April from 2.4% in March. On a monthly basis, the CPI and the core CPI both increased by 0.2%, compared to the market expectation of 0.3%.
The economic calendar will not offer any high-impact data releases that could influence EUR/USD's action. Hence, market participants will pay close attention to comments from European Central Bank (ECB) and Federal Reserve (Fed) policymakers.
ECB Governing Council Gabriel Makhlouf said on Tuesday that soft data point to a significant cooling in business and consumer sentiment. On a hawkish note, Bundesbank President Joachim Nagel and ECB policymaker Jose Luis Escriva both argued that the ECB needs to be cautious on next rate steps. In case ECB officials reiterate the need to continue to reduce key rates, the Euro could have a difficult time preserving its strength.
In the meantime, the CME Group FedWatch Tool shows that markets are currently pricing in a less than 10% probability of a 25 basis points rate cut in June. This market positioning suggests that the USD doesn't have much room left on the upside, even if Fed policymakers reaffirm a policy hold at next month's meeting.
EUR/USD Technical Analysis
EUR/USD was last seen trading near 1.1230, where the 200-period Simple Moving Average (SMA) on the 4-hour chart is located. In case the pair stabilizes above this level, the next immediate resistance is located at 1.1270 (Fibonacci 38.2% retracement of the latest uptrend) before 1.1310 (100-period SMA) and 1.1380 (Fibonacci 23.6% retracement).
On the downside, the first support level could be spotted at 1.1170 (Fibonacci 50% retracement) ahead of 1.1080-1.1090 (Fibonacci 61.8% retracement, 50-day SMA).
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.
