EUR/USD Forecast: Euro remains fragile amid French political crisis
- EUR/USD holds steady at around 1.1650 in the European session on Thursday.
- French political crisis could make it difficult for the Euro to gather strength.
- Investors await macroeconomic data releases from the US.
EUR/USD trades in a narrow channel at around 1.1650 after failing to make a decisive move in either direction on Wednesday. In the second half of the day, the US economic calendar will feature data releases that could trigger a short-term reaction.
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 | 0.65% | 0.10% | 0.18% | -0.38% | -0.45% | -0.00% | -0.07% | |
| EUR | -0.65% | -0.55% | -0.55% | -1.03% | -1.02% | -0.66% | -0.71% | |
| GBP | -0.10% | 0.55% | -0.12% | -0.48% | -0.53% | -0.10% | -0.17% | |
| JPY | -0.18% | 0.55% | 0.12% | -0.49% | -0.60% | -0.11% | -0.12% | |
| CAD | 0.38% | 1.03% | 0.48% | 0.49% | -0.04% | 0.41% | 0.34% | |
| AUD | 0.45% | 1.02% | 0.53% | 0.60% | 0.04% | 0.44% | 0.37% | |
| NZD | 0.00% | 0.66% | 0.10% | 0.11% | -0.41% | -0.44% | -0.06% | |
| CHF | 0.07% | 0.71% | 0.17% | 0.12% | -0.34% | -0.37% | 0.06% |
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 Euro came under selling pressure in the European session on Wednesday and EUR/USD touched a fresh three-week-low below 1.1600. In the second half of the day, the improving risk mood limited the US Dollar's (USD) gains and allowed the pair to stage a rebound.
Nevertheless, investors could remain reluctant to place themselves in position for a steady recovery in the Euro, given the deepening political crisis in France.
Commenting on French Prime Minister Francois Bayrou's decision to hold a confidence vote, CEO of Carrefour, the country's largest retailer, Alexandre Bompard said the political uncertainty raises the risk of a "strong hit on the economy as consumers postpone their spending decisions," per Reuters.
In the American session, the US Bureau of Economic Analysis (BEA) will publish the first revision to the Gross Domestic Product (GDP) growth for the second quarter. In the initial estimate, the BEA said that the US economy expanded at an annual rate of 3% in Q2. A negative revision could hurt the USD with the immediate reaction and vice versa.
The US economic calendar will also feature the weekly Initial Jobless Caims, which is forecast to edge lower to 230K from 235K. A reading below 220K could support the USD in the near term.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways near 50, reflecting EUR/USD's indecisiveness. Additionally, the pair fluctuates at around the 200-period Simple Moving Average (SMA), reaffirming the neutral stance.
On the downside, the first support level could be seen at 1.1600 (static level, round level) before 1.1540 (static level) and 1.1500 (static level, round level). Looking north, resistance levels could be spotted at 1.1660 (100-period SMA), 1.1700 (static level, round level) and 1.1730 (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.
