EUR/USD Forecast: Euro struggles to attract buyers despite improving risk mood
- EUR/USD fluctuates near 1.0850 after closing virtually unchanged on Thursday.
- The pair manages to hold above key support area for now.
- US economic docket will feature PCE inflation data for June on Friday.
After recovering to 1.0870 early Thursday, EUR/USD lost its momentum and closed the day virtually unchanged slightly below 1.0850 as the US Dollar (USD) benefited from upbeat data releases. Although the risk mood seems to be improving early Friday, the Euro is having a difficult time attracting buyers.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | 0.34% | -2.14% | 0.67% | 1.94% | 2.01% | -0.53% | |
| EUR | -0.28% | 0.04% | -2.46% | 0.37% | 1.70% | 1.66% | -0.87% | |
| GBP | -0.34% | -0.04% | -2.60% | 0.29% | 1.65% | 1.60% | -0.93% | |
| JPY | 2.14% | 2.46% | 2.60% | 2.92% | 4.25% | 4.21% | 1.60% | |
| CAD | -0.67% | -0.37% | -0.29% | -2.92% | 1.35% | 1.32% | -1.20% | |
| AUD | -1.94% | -1.70% | -1.65% | -4.25% | -1.35% | -0.03% | -2.54% | |
| NZD | -2.01% | -1.66% | -1.60% | -4.21% | -1.32% | 0.03% | -2.46% | |
| CHF | 0.53% | 0.87% | 0.93% | -1.60% | 1.20% | 2.54% | 2.46% |
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 US Bureau of Economic Analysis (BEA) reported on Thursday the United States' Gross Domestic Product (GDP) expanded at an annual rate of 2.8% in the second quarter, according to its first estimate. This print followed the 1.4% growth recorded in the first quarter and surpassed the market forecast of 2% by a wide margin.
The stronger-than-expected GDP reading and the mixed action seen in Wall Street helped the USD stay resilient against its major rivals during the American trading hours, limiting EUR/USD's upside.
Later in the day, the BEA will release the Personal Consumption Expenditures (PCE) Price Index data for June. The GDP report showed that the core Personal Consumption Expenditures Price Index rose 2.9% on a quarterly basis, below the 3.7% increase registered in the first quarter but above analysts' estimate of 2.7%. Since the quarterly PCE inflation data takes June's PCE Price Index into account, the market reaction to the monthly reading is likely to remain muted.
Nevertheless, changes in risk perception ahead of the weekend could drive EUR/USD's action. In the European session, US stock index futures trade marginally higher on the day. In case risk flows take control of markets following a bullish opening in Wall Street, the USD could struggle to gather strength and allow EUR/USD to hold its ground.
EUR/USD Technical Analysis
EUR/USD failed to reclaim the 100-period Simple Moving Average (SMA) for the second straight day on Thursday and the Relative Strength Index (RSI) indicator on the 4-hour chart edged lower after touching 50, reflecting a lack of buyer interest.
On the downside, the 100-day and the 200-day SMAs form strong support area at 1.0800-1.0790 ahead of 1.0740 (Fibonacci 78.6% retracement of the latest uptrend) and 1.0700 (psychological level, static level). Resistances could be seen at 1.0860 (100-period SMA),1.0880 (Fibonacci 23.6% retracement) and 1.0900 (psychological level, static level).
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.
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.
