EUR/USD Forecast: Euro shows signs of life as focus shifts to central bank meetings
- EUR/USD trades slightly above 1.1650 in the European session on Tuesday.
- The near-term technical outlook points to a bullish tilt.
- Investors could refrain from taking large positions ahead of the Fed and the ECB meetings.
EUR/USD continues to edge higher and trades slightly above 1.1650 after closing in positive territory on Monday. The technical outlook hints a bullish reversal in the short term but investors could move to the sidelines ahead of the Federal Reserve's (Fed) and the European Central Bank's (ECB) policy meetings.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.19% | 0.12% | -0.68% | -0.05% | -0.11% | 0.26% | -0.35% | |
| EUR | 0.19% | 0.32% | -0.39% | 0.14% | 0.15% | 0.44% | -0.16% | |
| GBP | -0.12% | -0.32% | -0.83% | -0.18% | -0.16% | 0.12% | -0.52% | |
| JPY | 0.68% | 0.39% | 0.83% | 0.55% | 0.48% | 0.82% | 0.24% | |
| CAD | 0.05% | -0.14% | 0.18% | -0.55% | -0.12% | 0.31% | -0.34% | |
| AUD | 0.11% | -0.15% | 0.16% | -0.48% | 0.12% | 0.28% | -0.36% | |
| NZD | -0.26% | -0.44% | -0.12% | -0.82% | -0.31% | -0.28% | -0.64% | |
| CHF | 0.35% | 0.16% | 0.52% | -0.24% | 0.34% | 0.36% | 0.64% |
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 risk-positive market atmosphere made it difficult for the US Dollar (USD) to find demand and allowed EUR/USD to register gains at the beginning of the week. Market participants remain optimistic about the United States (US) and China reaching an agreement to deescalate the trade conflict.
Early Tuesday, the market mood remains relatively upbeat after US President Donald Trump signed framework agreements on rare earths and minerals with Asian nations. Furthermore, the benchmark 10-year US Treasury bond yield stretches lower following Monday's decline, keeping the USD's recovery attempts in check.
In the second half of the day, the US economic calendar will feature the Conference Board's Consumer Confidence Index for October. A noticeable improvement in this data could support the USD and limit EUR/USD's upside in the American session. Nevertheless, investors are likely to refrain from taking large positions while preparing for the monetary policy announcements.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator rose above 60 and EUR/USD broke above the descending trend line, highlighting a bullish tilt in the short-term outlook.
The 100-day Simple Moving Average (SMA) aligns as an immediate resistance level at 1.1660. In case EUR/USD rises above this level and confirms it as support, 1.1690-1.1700 (200-period SMA, Fibonacci 38.2% retracement level of the latest uptrend) could be seen as the next resistance level before 1.1760 (Fibonacci 23.6% retracement).
On the downside, support levels could be seen at 1.1580 (Fibonacci 61.8% retracement), 1.1550 (static level) and 1.1500 (Fibonacci 78.6% retracement).
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.
