EUR/USD Forecast: Euro sets trading range before next breakout
- EUR/USD continues to move sideways at around 1.1200 for the second consecutive day.
- The near-term technical highlights a lack of directional momentum.
- The University of Michigan will publish preliminary US Consumer Sentiment Index for May.
EUR/USD struggles to find direction early Friday and moves sideways at around 1.1200 after closing virtually unchanged on Thursday. The near-term technical outlook reaffirms the pair's indecisiveness.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.45% | 0.04% | -0.65% | 0.39% | -0.18% | 0.30% | 0.12% | |
| EUR | -0.45% | -0.28% | -0.57% | 0.43% | -0.00% | 0.34% | 0.15% | |
| GBP | -0.04% | 0.28% | -0.10% | 0.71% | 0.29% | 0.54% | 0.42% | |
| JPY | 0.65% | 0.57% | 0.10% | 1.05% | -0.15% | 0.10% | 0.54% | |
| CAD | -0.39% | -0.43% | -0.71% | -1.05% | -0.31% | -0.09% | -0.29% | |
| AUD | 0.18% | 0.00% | -0.29% | 0.15% | 0.31% | 0.24% | 0.11% | |
| NZD | -0.30% | -0.34% | -0.54% | -0.10% | 0.09% | -0.24% | -0.22% | |
| CHF | -0.12% | -0.15% | -0.42% | -0.54% | 0.29% | -0.11% | 0.22% |
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) failed to gather strength following the mixed macroeconomic data releases and allowed EUR/USD to hold its ground on Thursday.
The Bureau of Labor Statistics reported that annual producer inflation, as measured by the change in the Producer Price Index, softened to 2.4% in April from 2.7% in March. Other data from the US showed that Retail Sales increased 0.1% on a monthly basis in April, while the weekly Initial Jobless Claims came in at 229,000, matching the previous week's reading and the market expectation.
The US economic calendar will feature Housing Starts and Building Permits data for April on Friday. More importantly, the University of Michigan (UoM) will publish the preliminary Consumer Sentiment Index data for May.
The UoM Consumer Sentiment Index declined for six consecutive months. If the data points to a further deterioration in consumer confidence, the USD could have a hard time finding demand heading into the weekend. On the other hand, a noticeable improvement could have the opposite impact on the currency's valuation.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator stays near 50, highlighting a lack of directional momentum in the near term.
The Fibonacci 50% retracement level of the latest uptrend aligns as the first support level at 1.1170. In case EUR/USD falls below this level and starts using it as resistance, technical sellers could show interest. In this scenario, 1.1080 (Fibonacci 61.8% retracement) and 1.1000 (round level, static level) could be seen as next support levels.
On the upside, resistances are located at 1.1260-1.1270 (200-period Simple Moving Average (SMA), Fibonacci 38.2% retracement), 1.1290-1.1300 (100-period SMA, static level) and 1.1380 (Fibonacci 23.6% retracement).
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.
