EUR/USD Forecast: Euro remains bearish after recovery attempt
- EUR/USD struggles to gain traction and trades below 1.1700 on Tuesday.
- The deepening political crisis in France doesn't allow the Euro to gather strength.
- The technical outlook suggests that the bearish bias remains intact.
EUR/USD staged a rebound in the American session on Monday but ended up closing the day in negative territory. The pair stays under bearish pressure in the European session on Tuesday and trades below 1.1700.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.50% | 0.05% | 0.86% | -0.01% | -0.13% | 0.12% | 0.21% | |
| EUR | -0.50% | -0.56% | 0.28% | -0.54% | -0.67% | -0.41% | -0.33% | |
| GBP | -0.05% | 0.56% | 0.93% | 0.01% | -0.11% | 0.15% | 0.23% | |
| JPY | -0.86% | -0.28% | -0.93% | -0.83% | -1.04% | -0.81% | -0.70% | |
| CAD | 0.01% | 0.54% | -0.01% | 0.83% | -0.07% | 0.14% | 0.22% | |
| AUD | 0.13% | 0.67% | 0.11% | 1.04% | 0.07% | 0.26% | 0.37% | |
| NZD | -0.12% | 0.41% | -0.15% | 0.81% | -0.14% | -0.26% | 0.08% | |
| CHF | -0.21% | 0.33% | -0.23% | 0.70% | -0.22% | -0.37% | -0.08% |
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).
News of newly-appointed French Prime Minister Sebastien Lecornu having resigned triggered a Euro selloff in the first half of the day on Monday. Later in the day, the US Dollar (USD) struggled to preserve its strength and allowed EUR/USD to edge higher as the US Senate, once again, rejected Democratic and Republican proposals to restore funding to the government.
Nevertheless, markets seem to be refraining from betting on a steady recovery early Tuesday, while awaiting political developments in France. French President Emmanuel Macron will now either appoint a new Prime Minister or dissolve parliament and call a new parliamentary election.
The economic calendar will not offer any high-impact data releases that could drive EUR/USD's action. Hence, market participants will assess the discussions surrounding the funding legislation in the American session.
US President Donald Trump warned on Monday that another failed vote could trigger layoffs in the federal workforce but added that they were discussing with Democrats regarding their demand to extend Obamacare subsidies past the end of the year. In case markets turn optimistic about the government shutdown coming to an end soon, the USD could continue to outperform its rivals and trigger another leg lower in EUR/USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, reflecting a lack of buyer interest.
Looking south, the first support level could be spotted at 1.1640 (Fibonacci 50% retracement of the latest uptrend) before 1.1580 (Fibonacci 61.8% retracement) and 1.1500 (round level, Fibonacci 78.6% retracement). On the upside, resistance levels could be spotted at 1.1700-1.1715 (Fibonacci 38.2% retracement, 200-period SMA) and 1.1750-1.1760 (100-period SMA, Fibonacci 23.6% retracement).
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.
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.
