EUR/USD Forecast: Euro retreats but holds above key support level
- EUR/USD trades near 1.0400 in the European morning on Thursday.
- The technical outlook points to a loss of bullish momentum in the near term.
- Sellers could hesitate as long as the 1.0390 support holds.
EUR/USD climbed to its highest level in over a month above 1.0450 in the early American session on Wednesday but struggled to preserve its bullish momentum. After closing the day marginally lower, the pair trades in a tight channel near 1.0400 in the European morning on Thursday.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.25% | -1.12% | 0.22% | -0.50% | -1.21% | -1.27% | -0.69% | |
| EUR | 1.25% | 0.07% | 1.37% | 0.65% | 0.10% | -0.13% | 0.44% | |
| GBP | 1.12% | -0.07% | 1.25% | 0.57% | 0.04% | -0.21% | 0.37% | |
| JPY | -0.22% | -1.37% | -1.25% | -0.70% | -1.36% | -1.57% | -1.07% | |
| CAD | 0.50% | -0.65% | -0.57% | 0.70% | -0.65% | -0.77% | -0.21% | |
| AUD | 1.21% | -0.10% | -0.04% | 1.36% | 0.65% | -0.32% | 0.27% | |
| NZD | 1.27% | 0.13% | 0.21% | 1.57% | 0.77% | 0.32% | 0.39% | |
| CHF | 0.69% | -0.44% | -0.37% | 1.07% | 0.21% | -0.27% | -0.39% |
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).
In the absence of high-tier data releases, the upbeat market sentiment helped EUR/USD hold its ground midweek. Rising US Treasury bond yields, however, supported the US Dollar and capped the pair's upside.
Later in the day, the US Department of Labor will release the weekly Initial Jobless Claims data. Markets expect the number of first-time applications for unemployment benefits to rise to 220,000 from 217,000 in the previous week. A reading below 210,000 could help the USD stay resilient against its rivals and cause EUR/USD to stretch lower. On the flip side, a print of 230,000 or higher could trigger a USD selloff and boost the pair in the second half of the day.
During the American trading hours, the European Commission will publish the preliminary Eurozone Consumer Confidence data for January, which is forecast to edge higher to -14.2 from -14.5 in December.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator retreated below 60 on Thursday, pointing to a loss of bullish momentum. Nevertheless, while EUR/USD holds above 1.0390, where the 200-period Simple Moving Average (SMA) meets the Fibonacci 50% retracement of the latest downtrend, technical sellers could refrain from betting on an extended slide.
On the upside, 1.0440 (Fibonacci 61.8% retracement, 50-day SMA) aligns as strong resistance before 1.0500 (round level, Fibonacci 78.6% retracement). In case 1.0390 level fails, 1.0350 (Fibonacci 38.2% retracement) and 1.0320 (100-period SMA) could be seen as next support levels.
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.
