EUR/USD Forecast: Euro struggles to attract buyers
- EUR/USD retreats below 1.1800 after posting small gains on Tuesday.
- The technical outlook doesn't offer any directional clues for the near term.
- The market mood could impact the pair's action.
After posting gains on Monday, EUR/USD edged higher but struggled to gather bullish momentum on Tuesday. The pair corrects lower early Wednesday and trades slightly below 1.1800.
Euro Price This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.36% | -0.11% | 0.10% | 0.53% | -0.30% | 0.25% | -0.18% | |
| EUR | 0.36% | 0.26% | 0.44% | 0.87% | 0.01% | 0.58% | 0.15% | |
| GBP | 0.11% | -0.26% | 0.12% | 0.64% | -0.22% | 0.34% | -0.06% | |
| JPY | -0.10% | -0.44% | -0.12% | 0.42% | -0.43% | 0.14% | -0.28% | |
| CAD | -0.53% | -0.87% | -0.64% | -0.42% | -0.85% | -0.28% | -0.69% | |
| AUD | 0.30% | -0.01% | 0.22% | 0.43% | 0.85% | 0.57% | 0.17% | |
| NZD | -0.25% | -0.58% | -0.34% | -0.14% | 0.28% | -0.57% | -0.44% | |
| CHF | 0.18% | -0.15% | 0.06% | 0.28% | 0.69% | -0.17% | 0.44% |
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 risk-averse market atmosphere and Federal Reserve (Fed) Chair Jerome Powell's cautious comments on policy-easing helped the US Dollar (USD) hold its ground in the American session on Tuesday and capped EUR/USD's upside.
Powell reiterated that they will make sure a one-time increase in prices does not become an ongoing inflation problem. He further noted that they will look at the labor market, growth, and inflation data to assess if the policy is in the right place by the next meeting.
On Wednesday, the data from Germany showed that the IFO - Business Climate declined to 87.7 in September from 89 in August, while the Current Assessment dropped to 85.7 from 86.4, weighing on the Euro.
New Home Sales data for August will be featured in the US economic calendar later in the day. A noticeable increase, following the 0.6% contraction recorded in July, could ease concerns over the housing market and support the USD with the immediate reaction. Nevertheless, investors could refrain from taking large positions based on this data alone.
In the meantime, US stock index futures trade marginally higher in the European session on Wednesday. In case risk flows dominate the action in financial markets, with a bullish opening in Wall Street, the USD could have a hard time finding demand and allow EUR/USD to keep its footing.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 50 and EUR/USD struggles to pull away from the 20-period Simple Moving Average (SMA) after clearing this level on Tuesday, reflecting a lack of buyer interest.
On the downside, the Fibonacci 23.6% retracement of the latest uptrend aligns as the first support level at 1.1770 ahead of 1.1740 (100-period SMA) and 1.1700 (Fibonacci 38.2% retracement, 200-period SMA).
Looking north, resistance levels could be spotted at 1.1820 (static level), 1.1870-1.1880 (upper limit of the ascending channel, end-point of the uptrend) and 1.1900 (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.
