EUR/USD Forecast: Euro recovery attempts to remain short-lived in Fed aftermath
- EUR/USD clings to modest daily recovery gains near 1.0400 on Thursday.
- The Fed's hawkish dot plot fuelled a USD rally late Wednesday.
- The technical outlook remains bearish in the near term.
EUR/USD came under heavy bearish pressure in the late American session on Wednesday and slumped to its weakest level in nearly a month below 1.0350. The pair stages a correction and trades at around 1.0400 but the technical outlook remains bearish.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.97% | -0.01% | 1.85% | 1.23% | 1.98% | 2.15% | 0.52% | |
| EUR | -0.97% | -0.93% | 0.98% | 0.31% | 1.17% | 1.24% | -0.40% | |
| GBP | 0.00% | 0.93% | 1.80% | 1.25% | 2.11% | 2.16% | 0.54% | |
| JPY | -1.85% | -0.98% | -1.80% | -0.63% | 0.14% | 0.32% | -1.22% | |
| CAD | -1.23% | -0.31% | -1.25% | 0.63% | 0.80% | 0.91% | -0.71% | |
| AUD | -1.98% | -1.17% | -2.11% | -0.14% | -0.80% | 0.07% | -1.54% | |
| NZD | -2.15% | -1.24% | -2.16% | -0.32% | -0.91% | -0.07% | -1.62% | |
| CHF | -0.52% | 0.40% | -0.54% | 1.22% | 0.71% | 1.54% | 1.62% |
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).
After the last policy meeting of the year, the Federal Reserve announced that it cut its policy rate by 25 basis points (bps) to the range of 4.25%-4.5%, as expected. In its policy statement, the Fed repeated that they will assess incoming data, evolving outlook and balance of risks when considering the extent and timing of additional rate adjustments.
On a hawkish twist, the revised Summary of Economic Projections (SEP) showed that Fed projections imply 50 bps of rate cuts in 2025. In the post-meeting press conference, Fed Chairman Jerome Powell explained that stronger economic growth and lower unemployment point to a slower rate-cut path, adding that they can be cautious going forward. The US Dollar (USD) gathered strength in the Fed aftermath and triggered a sharp decline in EUR/USD.
The US economic calendar will feature the weekly Initial Jobless Claims data and the US Bureau of Economic Analysis will publish the final revision to the third-quarter Gross Domestic Product (GDP) growth.
Meanwhile, US stock index futures were last seen rising about 0.3% on the day after Wall Street's main indexes suffered heavy losses on Wednesday. A decisive rebound in US stocks could limit the USD's upside and help EUR/USD hold its ground. Nevertheless, investors are unlikely to position themselves for a decisive recovery in the pair following the hawkish Fed outcome.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose slightly above 30, suggesting that EUR/USD's latest recovery attempt was a technical correction after the pair turned oversold during the post-Fed selloff.
On the downside, static support seems to have formed at 1.0350 ahead of 1.0300 (round level, static level) and 1.0240 (static level). In case EUR/USD rises above 1.0400 (static level, round level) and starts using this level as support, it could face next resistance at 1.0440 (static level) before 1.0500 (static level, 50-period Simple Moving Average).
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.
