EUR/USD Forecast: Euro rebounds before testing key support, eyes on US inflation data
- EUR/USD trades marginally higher on the day near 1.1050.
- August Consumer Price Index (CPI) data will be featured in the US economic docket.
- The technical outlook is yet to highlight a buildup of recovery momentum.
EUR/USD registered losses on Tuesday and touched its lowest level in over three weeks below 1.1020. The pair benefits from the selling pressure surrounding the US Dollar (USD) early Wednesday and trades in positive territory near 1.1050. Investors await August inflation data from the US.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.38% | 0.35% | -0.52% | 0.20% | 0.08% | 0.42% | 0.13% | |
| EUR | -0.38% | -0.08% | -0.83% | -0.17% | -0.34% | 0.05% | -0.30% | |
| GBP | -0.35% | 0.08% | -0.87% | -0.09% | -0.27% | 0.11% | -0.23% | |
| JPY | 0.52% | 0.83% | 0.87% | 0.71% | 0.60% | 0.91% | 0.80% | |
| CAD | -0.20% | 0.17% | 0.09% | -0.71% | -0.08% | 0.20% | 0.05% | |
| AUD | -0.08% | 0.34% | 0.27% | -0.60% | 0.08% | 0.38% | 0.01% | |
| NZD | -0.42% | -0.05% | -0.11% | -0.91% | -0.20% | -0.38% | -0.33% | |
| CHF | -0.13% | 0.30% | 0.23% | -0.80% | -0.05% | -0.01% | 0.33% |
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 risk-averse market environment helped the USD hold its ground in the second half of the day on Tuesday and forced EUR/USD to extend its decline. With US Treasury bond yields turning south during the Asian trading hours, however, the pair managed to find a foothold. Additionally, the sharp drop seen in the USD/JPY pair following hawkish comments from Bank of Japan (BoJ) board member Junko Nagakawa suggests that the Japanese Yen is capturing capital outflows out of the USD.
In the second half of the day, the US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for August. Markets are currently pricing in a 35% probability of a 50 basis points Federal Reserve (Fed) rate cut in September, according to the CME FedWatch Tool.
At this point, it would take a downward surprise in the inflation data for markets to reassess the odds of a large Fed rate cut next week. In case the monthly core CPI, which excludes volatile food and energy prices, rises 0.1% or less, against the market expectation of 0.2%, the immediate reaction could hurt the USD and help EUR/USD edge higher. On the other hand, a reading above the market forecast could have the opposite impact on the USD's valuation, causing EUR/USD to turn south.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50 after recovering from below-30 and EUR/USD is yet to make a 4-hour close above the 20-period and the 50-period Simple Moving Averages (SMA), reflecting a lack of recovery momentum.
EUR/USD could face strong support at 1.1000-1.0990 (Fibonacci 50% retracement of the latest uptrend, 200-period SMA) before 1.0940 (Fibonacci 61.8% retracement) and 1.0900 (psychological level, static level). On the upside, immediate resistance is located at 1.1050-1.1060 (20-period SMA; 50-period SMA) ahead of 1.1100 (Fibonacci 23.6% retracement, 100-period SMA) and 1.1160 (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.
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.
