EUR/USD Forecast: Euro shows no signs of a recovery yet
- EUR/USD trades near 1.1050 in the European session on Tuesday.
- The technical outlook is yet to point to a buildup of recovery momentum.
- August ISM Manufacturing PMI will be featured in the US economic calendar.
EUR/USD managed to register small daily gains on Monday but failed to gather recovery momentum. The pair stays on the back foot in the European morning on Tuesday and trades near 1.1050.
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 | -0.07% | 0.05% | -0.28% | 0.19% | 0.22% | 0.75% | 0.43% | |
| EUR | 0.07% | 0.14% | -0.24% | 0.23% | 0.29% | 0.80% | 0.49% | |
| GBP | -0.05% | -0.14% | -0.38% | 0.08% | 0.13% | 0.69% | 0.33% | |
| JPY | 0.28% | 0.24% | 0.38% | 0.43% | 0.54% | 1.16% | 0.65% | |
| CAD | -0.19% | -0.23% | -0.08% | -0.43% | 0.06% | 0.56% | 0.24% | |
| AUD | -0.22% | -0.29% | -0.13% | -0.54% | -0.06% | 0.50% | 0.19% | |
| NZD | -0.75% | -0.80% | -0.69% | -1.16% | -0.56% | -0.50% | -0.32% | |
| CHF | -0.43% | -0.49% | -0.33% | -0.65% | -0.24% | -0.19% | 0.32% |
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).
Thin trading conditions amid the Labor Day holiday in the US made it difficult for EUR/USD to make a decisive move in either direction at the start of the week. The cautious market stance helps the US Dollar (USD) hold its ground early Tuesday and makes it difficult for the pair to gain traction.
In the second half of the day, the ISM will release Manufacturing PMI data for August. The headline PMI is forecast to rise to 47.5 from 46.8 in July. In case this data comes in above 50 and shows an expansion in the manufacturing sector's activity, the immediate market reaction could help the USD gather further strength.
If the headline PMI arrives near the market expectation, investors could react to the change in the Employment Index of the survey. In July, the Employment Index dropped to its lowest level in four years at 43.4. A significant recovery in this data could ease fears over loosening conditions in the labor market and provide a boost to the USD. On the other hand, a reading below 45, which would show an ongoing decline in the number of employed in the manufacturing sector, could weigh on the currency and open the door for a rebound in EUR/USD.
EUR/USD Technical Analysis
EUR/USD retreated below the 100-period Simple Moving Average, currently located at 1.1070, on the 4-hour chart and closed the last two candles below this level. Additionally, the Relative Strength Index (RSI) indicator stays below 40, reflecting a lack of buyer interest.
EUR/USD could face immediate support at 1.1040 (Fibonacci 38.2% retracement of the latest uptrend) ahead of 1.1000 (psychological level, Fibonacci 50% retracement) and 1.0970 (200-period SMA).
On the upside, resistances are located at 1.1070 (100-period SMA), 1.1100 (Fibonacci 23.6% retracement) and 1.1160 (static level).
Euro FAQs
The Euro is the currency for the 20 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.
