EUR/USD Forecast: Euro stays fragile as key resistance holds
- EUR/USD struggles to build on Friday's recovery gains.
- The technical outlook points to a bearish stance in the near term.
- Dovish comments from ECB officials don't allow the Euro to gain traction.
EUR/USD trades on the back foot to start the week and stays in negative territory at around 1.0850 after closing in the green on Friday. The pair's near-term technical outlook suggests that buyers remain reluctant to bet on an extended rebound.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.79% | 0.34% | 0.49% | 0.33% | 0.88% | 0.71% | 0.97% | |
| EUR | -0.79% | -0.52% | -0.39% | -0.37% | 0.12% | -0.17% | 0.08% | |
| GBP | -0.34% | 0.52% | 0.12% | 0.02% | 0.68% | 0.38% | 0.58% | |
| JPY | -0.49% | 0.39% | -0.12% | -0.15% | 0.41% | 0.28% | 0.47% | |
| CAD | -0.33% | 0.37% | -0.02% | 0.15% | 0.49% | 0.40% | 0.46% | |
| AUD | -0.88% | -0.12% | -0.68% | -0.41% | -0.49% | -0.16% | 0.05% | |
| NZD | -0.71% | 0.17% | -0.38% | -0.28% | -0.40% | 0.16% | 0.19% | |
| CHF | -0.97% | -0.08% | -0.58% | -0.47% | -0.46% | -0.05% | -0.19% |
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 improving risk mood heading into the weekend made it difficult for the US Dollar (USD) to preserve its strength and paved the way for a rebound in EUR/USD on Friday.
In the absence of high-tier data releases, dovish comments from European Central Bank (ECB) officials weigh on the Euro, causing EUR/USD to stretch lower on Monday.
ECB Governing Council member Gediminas Šimkus said on Monday that if disinflation gets entrenched, rates could get lower than the natural level. Meanwhile, ECB policymaker Martins Kazaks argued that interest rates are still inhibiting growth, adding that he expects rates to continue to decline as inflation falls further.
Later in the week, ECB President Christine Lagarde will be delivering speeches at different events. On Thursday, S&P Global will release preliminary October Manufacturing and Services Purchasing Managers Index (PMI) data for Germany, the Euro area and the US.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 40 after rising to the 50 area on Friday, suggesting that EUR/USD's remains bearish in the near term following a technical correction.
On the downside, 1.0830 (static level) aligns as interim support before 1.0780 (beginning point of the latest uptrend) and 1.0740 (static level from April). Looking north, immediate resistance could be spotted at 1.0870 (Fibonacci 78.6% retracement of the latest uptrend) ahead of 1.0900 (static level, round level, 50-period Simple Moving Average). A daily close above the latter could attract technical buyers and open the door for another leg higher toward 1.0950 (Fibonacci 61.8% retracement).
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.
