EUR/USD Forecast: Euro needs to clear 1.0870 to attract buyers
- EUR/USD holds near 1.0850 after posting small gains on Monday.
- The pair could attract technical buyers if it manages to stabilize above 1.0870.
- The economic calendar will not offer any high-tier data releases on Tuesday.
EUR/USD went into a consolidation phase near 1.0850 after closing in positive territory on Monday. The near-term technical outlook points to a bullish tilt but investors could refrain from betting on an extended Euro recovery unless it clears 1.0870 resistance.
In the absence of high-tier macroeconomic data releases, the US Dollar (USD) struggled to gather strength at the beginning of the week. Meanwhile, the findings of the Federal Reserve Bank of New York's latest Survey of Consumer Expectations showed that the year-ahead inflation expectation remained unchanged at 3% in March.
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 | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.19% | -0.22% | -0.17% | -0.52% | 0.13% | -0.52% | 0.24% | |
| EUR | 0.19% | -0.02% | 0.03% | -0.31% | 0.33% | -0.32% | 0.41% | |
| GBP | 0.22% | 0.03% | 0.06% | -0.29% | 0.35% | -0.30% | 0.46% | |
| CAD | 0.17% | -0.02% | -0.05% | -0.34% | 0.30% | -0.34% | 0.36% | |
| AUD | 0.52% | 0.32% | 0.29% | 0.35% | 0.65% | 0.00% | 0.74% | |
| JPY | -0.13% | -0.33% | -0.33% | -0.30% | -0.67% | -0.66% | 0.09% | |
| NZD | 0.52% | 0.31% | 0.31% | 0.33% | 0.01% | 0.65% | 0.73% | |
| CHF | -0.21% | -0.42% | -0.44% | -0.37% | -0.71% | -0.08% | -0.73% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
On Wednesday, the US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for March.
The CME FedWatch Tool shows that markets see a nearly 50% probability of a 25 basis points (bps) rate cut in June, suggesting that the USD faces a two-way risk heading into this key data. Hence, investors could opt to remain on the sidelines, making it difficult for EUR/USD to gather directional momentum in the near term.
In the meantime, US stock index futures trade flat in the European session and fail to provide a clue regarding the risk mood.
EUR/USD Technical Analysis
EUR/USD trades near 1.0850, where the 200-period Simple Moving Average (SMA) on the 4-hour chart is located. Above this level, the Fibonacci 61.8% retracement of the latest downtrend aligns as stiff resistance at 1.0870. If the pair manages to flip this level into support, it could target 1.0900 (Fibonacci 78.6% retracement) next.
On the downside, first support could be seen at 1.0840-1.0830 (Fibonacci 50% retracement, 100-period SMA) before 1.0800 (50-period SMA) and 1.0780 (Fibonacci 23.6% retracement).
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.
