EUR/USD Forecast: Euro stabilizes but clings to bullish bias
- EUR/USD fluctuates in a narrow channel above 1.1700 on Monday.
- The near-term technical picture suggests that the bullish bias remains unchanged.
- Comments from central bankers could trigger the next big action in the pair.
EUR/USD seems to have entered a consolidation phase above 1.1700 on Monday following the previous week's impressive rally.
Euro PRICE This month
The table below shows the percentage change of Euro (EUR) against listed major currencies this month. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -2.95% | -1.39% | 0.13% | -0.98% | -1.46% | -1.66% | -3.11% | |
| EUR | 2.95% | 1.64% | 3.15% | 2.04% | 1.58% | 1.66% | -0.16% | |
| GBP | 1.39% | -1.64% | 1.50% | 0.40% | -0.05% | -0.15% | -1.76% | |
| JPY | -0.13% | -3.15% | -1.50% | -1.12% | -1.52% | -1.66% | -3.19% | |
| CAD | 0.98% | -2.04% | -0.40% | 1.12% | -0.41% | -0.56% | -2.15% | |
| AUD | 1.46% | -1.58% | 0.05% | 1.52% | 0.41% | 0.08% | -1.71% | |
| NZD | 1.66% | -1.66% | 0.15% | 1.66% | 0.56% | -0.08% | -1.79% | |
| CHF | 3.11% | 0.16% | 1.76% | 3.19% | 2.15% | 1.71% | 1.79% |
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).
While the technical outlook remains bullish in the near term, investors could refrain from taking large positions ahead of European Central Bank (ECB) President Christine Lagarde's and Federal Reserve (Fed) Chairman Jerome Powell's speeches at the ECB Forum on Central Banking on Tuesday.
Lagarde and Powell will participate in a policy panel. According to the CME FedWatch Tool, markets are currently pricing in about a 20% probability of the Fed lowering the policy rate by 25 basis points at the July meeting. This market positioning suggests that the US Dollar (USD) could stay resilient against its peers in case Powell reaffirms that they are unlikely to ease the policy until September.
The data from Germany showed on Monday that annual inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 2% in June's preliminary estimate from 2.1% in May. On a monthly basis, the CPI remained unchanged. This reading came in below the market expectation for an increase of 0.2% and made it difficult for the Euro to gather strength.
Meanwhile, Wall Street's main indexes started the day in positive territory, not allowing the USD to gather recovery momentum and helping EUR/USD limit its downside.
Later in the day, EUR/USD's could experience heightened volatility due to position adjustments and profit-taking on the last day of the second quarter.
EUR/USD Technical Analysis
EUR/USD fluctuates within the upper half of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60, despite retreating slightly in the first half of the day. On the upside, 1.1730 (static level) aligns as an interim resistance level before 1.1760 (upper limit of the ascending channel) and 1.1800 (static level, round level).
In case EUR/USD fails to hold above 1.1700 (static level, 20-period Simple Moving Average) and flips that level into resistance, 1.1660 (mid-point of the ascending channel) and 1.1620 (static level) 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.
