EUR/USD Forecast: Euro remains bearish as it approaches key support level
- EUR/USD trades well below 1.1600 in the European session on Friday.
- The ECB maintained monetary policy settings after the October meeting.
- Investors will pay close attention to comments from Fed policymakers.
Following Wednesday's sharp decline, EUR/USD failed to shake off the bearish pressure on Thursday and dropped to its weakest level in more than two weeks, below 1.1550. Early Friday, the pair stays in a consolidation phase but the technical outlook suggests that the bearish bias remains unchanged.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.58% | 1.40% | 0.88% | -0.04% | -0.02% | 1.03% | 0.76% | |
| EUR | -0.58% | 0.83% | 0.36% | -0.62% | -0.53% | 0.44% | 0.18% | |
| GBP | -1.40% | -0.83% | -0.57% | -1.43% | -1.33% | -0.38% | -0.67% | |
| JPY | -0.88% | -0.36% | 0.57% | -1.01% | -0.98% | 0.02% | -0.22% | |
| CAD | 0.04% | 0.62% | 1.43% | 1.01% | -0.03% | 1.07% | 0.77% | |
| AUD | 0.02% | 0.53% | 1.33% | 0.98% | 0.03% | 0.96% | 0.66% | |
| NZD | -1.03% | -0.44% | 0.38% | -0.02% | -1.07% | -0.96% | -0.30% | |
| CHF | -0.76% | -0.18% | 0.67% | 0.22% | -0.77% | -0.66% | 0.30% |
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 European Central Bank (ECB) announced on Thursday that it left key rates unchanged following the October policy meeting, as widely anticipated. In the policy statement, the ECB reiterated its data-dependent approach to policymaking and said that they are not "pre-committing" to a particular rate path.
While responding to questions from the press, ECB President Chritsine Lagarde acknowledged that they are in a "period of great uncertainty" and added that a stronger Euro (EUR) could bring down inflation further than expected.
The persistent US Dollar (USD) strength that followed Federal Reserve (Fed) Chair Jerome Powell's cautious comments on further policy easing, combined with the negative impact of the ECB event on the Euro, EUR/USD extended its weekly slide on Thursday.
The economic calendar will not feature any high-impact data releases on Friday. In the American session, several Fed policymakers will be delivering speeches.
The CME FedWatch Tool's probability of a 25 basis points (bps) rate cut in December dropped below 70% from around 90% earlier in the week. In case Fed officials leave the door open for a December cut, the immediate reaction could weigh on the USD and help EUR/USD erase some of its weekly losses. On the other hand, the USD could preserve its strength heading into the weekend if policymakers echo Powell's tone, noting another rate cut before the end of the year is far from assured.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays in between 30 and 40, suggesting that the bearish bias remains unchanged and that there is room on the downside before EUR/USD turns technically oversold.
On the downside, 1.1550 (static level) aligns as the immediate support level before 1.1500 (Fibonacci 78.6% retracement) and 1.1450 (static level). Looking north, the first resistance level could be spotted at 1.1620 (20-day SMA) ahead of 1.1670-1.1680 (100-day SMA, 50-day SMA).
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.
