EUR/USD Forecast: Euro stabilizes but looks fragile
- EUR/USD trades in a narrow channel at around 1.1850 early Monday.
- The risk-averse market atmosphere could make it difficult for the pair to gain traction.
- The near-term technical outlook suggests that the bearish bias remains intact.
EUR/USD fell 1% on Friday and erased all of its weekly gains. The pair holds steady near 1.1850 in the European morning on Monday but a decisive recovery attempt could be difficult to come by in the short term.
Euro Price Last 7 Days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | -0.28% | 0.26% | -0.43% | -0.45% | -0.92% | -0.01% | |
| EUR | -0.12% | -0.42% | 0.15% | -0.55% | -0.55% | -1.04% | -0.13% | |
| GBP | 0.28% | 0.42% | 0.23% | -0.13% | -0.14% | -0.63% | 0.29% | |
| JPY | -0.26% | -0.15% | -0.23% | -0.69% | -0.70% | -1.15% | -0.27% | |
| CAD | 0.43% | 0.55% | 0.13% | 0.69% | -0.13% | -0.47% | 0.42% | |
| AUD | 0.45% | 0.55% | 0.14% | 0.70% | 0.13% | -0.50% | 0.43% | |
| NZD | 0.92% | 1.04% | 0.63% | 1.15% | 0.47% | 0.50% | 0.92% | |
| CHF | 0.00% | 0.13% | -0.29% | 0.27% | -0.42% | -0.43% | -0.92% |
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 broad-based US Dollar (USD) strength caused EUR/USD to decline sharply heading into the weekend. US President Donald Trump announced on Friday that he nominated Kevin Warsh, who served as a Federal Reserve (Fed) Governor from 2006 to 2011, as the new chair of the Fed. Warsh is widely seen as someone who would take a firm stance against inflation and adopt a pragmatic approach to policy-making.
The US economic calendar will feature the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) data for January. In case the headline PMI recovers into the expansion territory above 50, the immediate reaction could be supportive for the USD and cause EUR/USD to edge lower. Investors will also pay close attention to the Employment Index of the survey. A weaker reading that December's 44.9 could revive concerns about the labor market conditions and hurt the USD.
Later in the week, the European Central Bank (ECB) will announce monetary policy decisions and the US Bureau of Labor Statistics will release the Nonfarm Payrolls (NFP) data for January.
Meanwhile, US stock index futures were last seen losing between 0.3% and 0.8% on the day. In case safe-haven flows continue to dominate the market action in the second half of the day, EUR/USD could
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50 suggesting that bearish bias remains intact despite the recent stabilization. On the upside, 1.1870 (Fibonacci 38.2% retracement of the latest uptrend) aligns as the immediate resistance ahead of 1.1930-1.1940 (20-period Simple Moving Average (SMA), Fibonacci 23.6% retracement) and 1.2000 (static level, round level).
Looking south, support levels could be spotted at 1.1810-1.1800 (Fibonacci 50% retracement, round level) and 1.1760-1.1750 (Fibonacci 61.8% retracement, 100-period SMA, 200-period SMA).
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.
