EUR/USD Forecast: Euro regains traction on hawkish ECB commentary
- EUR/USD trades in positive territory above 1.1400 on Monday.
- The Euro benefits from the latest comments from ECB officials.
- Markets will pay close attention to headlines coming out of the US-China trade talks.
EUR/USD trades in positive territory above 1.1400 after starting the week on a bullish note. Headlines coming out of the next round of trade negotiations between China and the US could impact the US Dollar's (USD) valuation and drive the pair's action later in the day.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.24% | -0.30% | -0.53% | -0.10% | -0.42% | -0.58% | -0.26% | |
| EUR | 0.24% | -0.08% | -0.31% | 0.13% | -0.16% | -0.35% | -0.03% | |
| GBP | 0.30% | 0.08% | -0.16% | 0.21% | -0.07% | -0.28% | 0.05% | |
| JPY | 0.53% | 0.31% | 0.16% | 0.44% | 0.07% | -0.10% | 0.17% | |
| CAD | 0.10% | -0.13% | -0.21% | -0.44% | -0.33% | -0.48% | -0.16% | |
| AUD | 0.42% | 0.16% | 0.07% | -0.07% | 0.33% | -0.20% | 0.14% | |
| NZD | 0.58% | 0.35% | 0.28% | 0.10% | 0.48% | 0.20% | 0.33% | |
| CHF | 0.26% | 0.03% | -0.05% | -0.17% | 0.16% | -0.14% | -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).
EUR/USD edged lower on Friday but registered small weekly gains. The USD recovered following the better-than-expected Nonfarm Payrolls (NFP) data for May and caused the pair to correct lower heading into the weekend.
The US Bureau of Labor Statistics reported that NFP rose by 139,000 in May. This reading came in slightly better than the market expectation of 130,000. In this period, the Unemployment Rate remained unchanged at 4.2%, as anticipated.
Meanwhile, European Central Bank (ECB) President Christine Lagarde said over the weekend that they have a long way to go until inflation is squeezed out of the economy and added that rates will have to remain restrictive for as long as necessary to ensure price stability on a lasting basis. Similarly, ECB Governing Council member Joachim Nagel said that they can take their time to assess the situation before taking the next policy step. These remarks helped the Euro start the week on a firm footing.
The economic calendar will not offer any high-impact macroeconomic data releases on Monday. Investors will pay close attention to headlines coming out of the next round of trade negotiations between officials from China and the US. In case there is a constructive outcome out of these talks, with sides moving closer to a broad deal, the USD could gather strength against its rivals with the immediate reaction and weigh on EUR/USD. On the flip side, the USD could have a difficult time finding demand if the headlines fail to convince markets that the US and China are looking to end the trade dispute as soon as possible.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 50 and EUR/USD fluctuates at around the 20-period Simple Moving Average (SMA), suggesting that the bullish bias remains intact but lacks momentum.
On the upside, 1.1450 (static level) aligns as the first resistance level before 1.1500 (static level, round level) and 1.1575 (April 21 high). Looking south, supports could be seen at 1.1380 (Fibonacci 23.6% retracement of the latest uptrend), 1.1340 (100-period SMA) and 1.1310-1.1300 (200-period SMA, static level).
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.
