EUR/USD Forecast: Euro remains bearish despite recent recovery
- EUR/USD trades in positive territory at around 1.0400 on Friday.
- The technical outlook suggests that the bearish bias remains intact.
- Investors await November PCE inflation data from the US.
EUR/USD found support following Wednesday's sharp decline and closed marginally higher on Thursday. The pair gathers recovery momentum and trades at around 1.0400 in the European morning on Friday.
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 | 1.02% | 0.84% | 2.12% | 1.03% | 1.85% | 2.12% | 0.18% | |
| EUR | -1.02% | -0.13% | 1.19% | 0.08% | 0.99% | 1.18% | -0.77% | |
| GBP | -0.84% | 0.13% | 1.20% | 0.20% | 1.12% | 1.28% | -0.65% | |
| JPY | -2.12% | -1.19% | -1.20% | -1.08% | -0.27% | 0.02% | -1.82% | |
| CAD | -1.03% | -0.08% | -0.20% | 1.08% | 0.86% | 1.08% | -0.85% | |
| AUD | -1.85% | -0.99% | -1.12% | 0.27% | -0.86% | 0.19% | -1.75% | |
| NZD | -2.12% | -1.18% | -1.28% | -0.02% | -1.08% | -0.19% | -1.93% | |
| CHF | -0.18% | 0.77% | 0.65% | 1.82% | 0.85% | 1.75% | 1.93% |
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 US Dollar (USD) preserved its strength on Thursday after outperforming its rivals on the Federal Reserve's (Fed) hawkish dot plot on Wednesday. Upbeat macroeconomic data releases from the US further supported the currency. EUR/USD, however, managed to hold its ground.
The decisive upsurge seen in EUR/GBP cross on Wednesday showed that the Euro captured capital outflows out of Pound Sterling (GBP). The Bank of England (BoE) announced on Thursday that it maintained the bank rate at 4.75% after the December meeting. Three members of the Monetary Policy Committee (MPC), however, unexpectedly voted in favor of a rate cut, triggering a GBP selloff.
Later in the day, the US Bureau of Economic Analysis will publish the Personal Consumption Expenditures (PCE) Price Index data for November. Following the Fed meeting, investors are unlikely to react to the PCE inflation data.
Market participants will also keep a close eye on political developments in the US. There is a possibility of a government shutdown at the end of the day unless Congress approves a new spending bill. In case US T-bond yields turn south in the American session, the USD could have a hard time finding demand.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50 despite the latest rebound, suggesting that EUR/USD is still in a correction phase rather than turning bullish. On the downside, static support is located at 1.0350 ahead of 1.0300 (round level, static level) and 1.0240 (static level).
In case the pair stabilizes above 1.0400 (static level, round level) next resistances could be spotted at 1.0440 (static level) and 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.
