EUR/USD Forecast: Euro stabilizes above 1.1600 ahead of US inflation data
- EUR/USD trades in a tight range above 1.1600 after posting marginal losses on Monday.
- Investors await July CPI inflation data from the US.
- The near-term technical outlook points to a neutral stance.
EUR/USD moves sideways slightly above 1.1600 after closing marginally lower on Monday. As investors await July Consumer Price Index (CPI) data from the US, the pair's near-term technical outlook highlights a neutral stance.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.29% | -0.06% | 0.59% | 0.27% | 0.50% | 0.59% | 0.12% | |
| EUR | -0.29% | -0.36% | 0.33% | -0.01% | 0.20% | 0.25% | -0.17% | |
| GBP | 0.06% | 0.36% | 0.62% | 0.35% | 0.57% | 0.61% | 0.19% | |
| JPY | -0.59% | -0.33% | -0.62% | -0.28% | -0.05% | 0.07% | -0.33% | |
| CAD | -0.27% | 0.01% | -0.35% | 0.28% | 0.23% | 0.27% | -0.18% | |
| AUD | -0.50% | -0.20% | -0.57% | 0.05% | -0.23% | 0.05% | -0.38% | |
| NZD | -0.59% | -0.25% | -0.61% | -0.07% | -0.27% | -0.05% | -0.42% | |
| CHF | -0.12% | 0.17% | -0.19% | 0.33% | 0.18% | 0.38% | 0.42% |
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) held its ground on Monday and caused EUR/USD to edge lower as investors cheered the news of the US and China agreeing to extend the trade truce for another 90 days.
Annual inflation in the US, as measured by the change in the CPI, is expected to rise to 2.8% in July from 2.7% in June. On a monthly basis, the CPI and the core CPI, which excludes volatile food and energy prices, are forecast to increase by 0.2% and 0.3%, respectively.
In case the headline annual CPI comes in above the market consensus, the USD could gather strength against its rivals with the immediate reaction. If this data matches the expectation, investors could react to the monthly core CPI print. A stronger-than-forecast increase in this figure could be supportive for the USD. Conversely, a soft core inflation reading is likely to feed into expectations of three Federal Reserve (Fed) rate cuts this year and hurt the USD, allowing EUR/USD to gain traction.
According to the CME FedWatch Tool, investors are currently pricing in a 43% probability of the Fed lowering the policy rate by a total of 75 bps in the remainder of the year.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart moves sideways near 50 and EUR/USD fluctuates at around the 100-period Simple Moving Average (SMA), while remaining in between the 50-period and the 20-period SMAs, reflecting a neutral stance.
The 100-period SMA could be seen as a pivot level at 1.1625. Once EUR/USD confirms that level as support, 1.1650-1.1665 (Fibonacci 23.6% retracement of the latest uptrend, 200-period SMA) could be seen as the next resistance before 1.1700 (static level, round level) and 1.1760 (static level).
On the downside, 1.1600-1.1590 (static level, round level, 50-period SMA) aligns as the first support before 1.1540 (Fibonacci 38.2% retracement) and 1.1500 (static level, 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.
