EUR/USD Forecast: Euro stabilizes but struggles to gather momentum
- EUR/USD holds above 1.1600 to begin the new trading week.
- The Euro benefits from the improving risk mood in the European session.
- The economic calendar will not feature any high-impact data releases on Monday.
EUR/USD holds its ground to begin the new week and trades in positive territory, slightly below 1.1650. In the absence of high-tier data releases, the pair could continue to stretch higher in case the market mood remains upbeat in the second half of the day.
The Financial Times reported late Friday that US President Donald was planning to impose a minimum tariff of 15% to 20% in a trade deal with the European Union (EU). On Sunday, US Commerce Secretary Howard Lutnick noted that he was confident that they will reach an agreement with the EU but reiterated that August 1 is a hard deadline for tariffs to kick in.
Meanwhile, in its quarterly Survey on the Access to Finance of Enterprises (SAFE) published on Monday, the European Central Bank (ECB) said that most Eurozone firms remain upbeat on growth prospects but face headwinds from trade tensions.
At the time of press, US stock index futures were up between 0.3% and 0.35%. In case Wall Street starts the week on a bullish note, risk flows could dominate the action in financial markets and make it difficult for the US Dollar (USD) to find demand.
Later in the week, preliminary July Manufacturing and Services Purchasing Managers' Index (PMI) data from Germany, the Eurozone and the US will be scrutinized by investors.
EUR/USD Technical Analysis
EUR/USD holds above the 200-period Simple Moving Average (SMA) on the 4-hour chart after dipping below this level late last week, highlighting sellers' hesitancy. Additionally, the Relative Strength Index (RSI) indicator stays slightly above 50.
On the upside, 1.1650 (Fibonacci 23.6% retracement of the latest uptrend) aligns as the first resistance level ahead of 1.1700 (100-period SMA) and 1.1760 (static level). Looking south, support levels could be spotted at 1.1615 (200-period SMA), 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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
