EUR/USD Forecast: Euro remains vulnerable despite oversold conditions
- EUR/USD trades at its lowest level in nearly two months below 1.0950.
- The hawkish tone in FOMC minutes boosted the US Dollar on Wednesday.
- Investors await September Consumer Price Index data from the US.
EUR/USD came under renewed bearish pressure in the late American session on Wednesday and ended the day deep in negative territory. The pair stays on the back foot early Thursday and trades at its lowest level since mid-August below 1.0950.
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 | 0.27% | 0.21% | 0.13% | 1.15% | 0.94% | 1.27% | 0.09% | |
| EUR | -0.27% | 0.01% | -0.11% | 0.91% | 0.65% | 1.00% | -0.20% | |
| GBP | -0.21% | -0.01% | -0.14% | 0.91% | 0.64% | 1.02% | -0.10% | |
| JPY | -0.13% | 0.11% | 0.14% | 1.02% | 0.79% | 1.09% | -0.00% | |
| CAD | -1.15% | -0.91% | -0.91% | -1.02% | -0.18% | 0.12% | -1.05% | |
| AUD | -0.94% | -0.65% | -0.64% | -0.79% | 0.18% | 0.39% | -0.81% | |
| NZD | -1.27% | -1.00% | -1.02% | -1.09% | -0.12% | -0.39% | -1.14% | |
| CHF | -0.09% | 0.20% | 0.10% | 0.00% | 1.05% | 0.81% | 1.14% |
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 hawkish tone in the minutes of the Federal Reserve's (Fed) September policy meeting helped the US Dollar (USD) outperform its rivals late Wednesday, forcing EUR/USD to stretch lower.
The publication showed that even though a substantial majority of Fed officials supported the 50 basis points (bps) rate cut, there was even a broader consensus that this initial step would not lock the Fed into any specific pace for future rate cuts. Additionally, some participants favored only a 25 bps reduction in the policy rate cut, while "a few others" mentioned they could have supported that decision as well.
The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data for September later in the day. The annual CPI inflation is forecast to decline to 2.3% from 2.5% in August. The core CPI, which excludes volatile food and energy prices, is seen rising 0.2% on a monthly basis.
It will likely require a significant downside surprise, a reading of 0% or lower, in the monthly core CPI data for investors to reconsider the probability of another large Fed rate cut in November. In this scenario, EUR/USD could stage a steady rebound. On the flip side, a print at or above the market forecast could help the USD hold its ground.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 30, suggesting that the pair is about to turn technically oversold. On the upside, immediate resistance is located at 1.0950 (static level, Fibonacci 61.8% retracement of the latest uptrend). In case EUR/USD stabilizes above this level and confirms it as support, it could edge higher toward 1.1000 (Fibonacci 50% retracement) and 1.1050 (Fibonacci 38.2% retracement).
Looking south, interim support could be spotted at 1.0900 (round level) before 1.0870 (Fibonacci 78.6% retracement) and 1.0800 (round 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.
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.
