EUR/USD Forecast: Euro struggles to break out of range
- EUR/USD extends its sideways grind above 1.0800 midweek.
- Fed Chairman Powell will speak before the US House on the second day of his congressional testimony.
- The near-term technical outlook highlights a lack of directional momentum.
EUR/USD closed marginally lower on Tuesday but didn't have a difficult time staying afloat above 1.0800. The pair's near-term technical outlook shows a lack of directional momentum.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.22% | 0.16% | 0.48% | -0.04% | 0.18% | 1.13% | 0.14% | |
| EUR | -0.22% | 0.14% | 0.59% | 0.06% | 0.12% | 1.24% | 0.25% | |
| GBP | -0.16% | -0.14% | 0.39% | -0.07% | -0.01% | 1.10% | 0.10% | |
| JPY | -0.48% | -0.59% | -0.39% | -0.52% | -0.28% | 0.80% | -0.29% | |
| CAD | 0.04% | -0.06% | 0.07% | 0.52% | 0.18% | 1.17% | 0.19% | |
| AUD | -0.18% | -0.12% | 0.01% | 0.28% | -0.18% | 1.12% | 0.13% | |
| NZD | -1.13% | -1.24% | -1.10% | -0.80% | -1.17% | -1.12% | -0.98% | |
| CHF | -0.14% | -0.25% | -0.10% | 0.29% | -0.19% | -0.13% | 0.98% |
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).
On the first day of his congressional testimony, Federal Reserve (Fed) Chairman Jerome Powell repeated that it will not be appropriate to lower the policy rate until they gain greater confidence in inflation heading toward 2% in a sustainable way. Powell acknowledged that the recent jobs data "sent a pretty clear signal" that the labor market has cooled considerably. These comments failed to influence the US Dollar's (USD) valuation and allowed EUR/USD to stay in its daily range.
Powell will speak before the House Financial Services Committee on the second day of his congressional testimony. He will deliver the same opening remarks and is unlikely to offer any fresh clues regarding the policy outlook.
On Thursday, the US Bureau of Labor Statistics will release the Consumer Price Index data for June. Ahead of this key data releases, EUR/USD could find it hard to make a decisive move in either direction.
EUR/USD Technical Analysis
The Relative Strength Index continues to move sideways slightly above 50, reflecting EUR/USD's neutral stance. 1.0840 (Fibonacci 23.6% retracement of the latest uptrend) remains intact as resistance before 1.0900 (psychological level, static level).
The 100-day and the 200-day Simple Moving Averages form strong support at 1.0800 on the downside. A daily close below this level could attract technical sellers and open the door for an extended correction toward 1.0760 (Fibonacci 50% retracement).
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.
