EUR/USD Forecast: Euro remains fragile ahead of Powell speech
- EUR/USD trades near 1.1550 in the European session on Tuesday.
- Fed Chair Powell will speak on monetary policy and economic outlook later in the day.
- The pair's technical outlook confirms the bearish stance in the near term.
EUR/USD struggles to hold its ground and trades in the red at around 1.1550 after closing in negative territory on Monday. Later in the American session, Federal Reserve (Fed) Chair Jerome Powell's speech will be scrutinized by market participants.
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 | 0.52% | 0.55% | 0.11% | 0.48% | 0.88% | 0.97% | 0.29% | |
| EUR | -0.52% | 0.03% | -0.35% | -0.06% | 0.44% | 0.44% | -0.25% | |
| GBP | -0.55% | -0.03% | -0.32% | -0.08% | 0.39% | 0.41% | -0.30% | |
| JPY | -0.11% | 0.35% | 0.32% | 0.32% | 0.72% | 0.89% | 0.13% | |
| CAD | -0.48% | 0.06% | 0.08% | -0.32% | 0.36% | 0.50% | -0.22% | |
| AUD | -0.88% | -0.44% | -0.39% | -0.72% | -0.36% | 0.03% | -0.70% | |
| NZD | -0.97% | -0.44% | -0.41% | -0.89% | -0.50% | -0.03% | -0.71% | |
| CHF | -0.29% | 0.25% | 0.30% | -0.13% | 0.22% | 0.70% | 0.71% |
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) gathered strength to start the week as fears over a deepening US-China trade conflict eased. US Treasury Secretary Scott Bessent told Fox Business on Monday that he believes China is open to discussions and added that 100% tariff doesn't have to happen.
Early Tuesday, markets adopt a cautious stance after China's Commerce Ministry stated that the US needs to correct its "wrong practices" and show sincerity in talks with China. The USD seems to be benefiting from safe-haven flows in the European session, making it difficult for EUR/USD to gain traction.
Fed Chair Powell will speak on the monetary policy and economic outlook at an event in Philadelphia. Markets are currently pricing in about a 90% probability of the Fed lowering the policy rate by a total of 50 basis-points by the end of the year. In case Powell adopts a cautious tone on policy easing and suggests that a rate cut in December will depend on data, the immediate reaction could support the USD and cause EUR/USD to stretch lower. On the other hand, the USD could struggle to attract buyers if Powell emphasizes the need to adjust the policy to respond to worsening conditions in the labor market.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50 and EUR/USD trades below the 20-period Simple Moving Average (SMA), currently located at 1.1580, after failing to stabilize above it on Monday, reflecting a bearish stance.
On the downside, 1.1550 (static level) aligns as the immediate support level before 1.1500 (Fibonacci 78.6% retracement of the latest uptrend) and 1.1450 (static level). Looking north, resistance levels could be seen at 1.1580 (20-period SMA, Fibonacci 61.8% retracement) and 1.1650 (100-day SMA).
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.
