EUR/USD Forecast: Euro struggles to build on Tuesday's gains
- EUR/USD edged lower to the 1.0700 area in the European morning on Wednesday.
- The near-term technical outlook remains slightly bullish.
- US economic docket will feature Durable Goods Orders data for March.
EUR/USD stays in a consolidation phase at around 1.0700 early Wednesday after closing in positive territory on Tuesday.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.24% | -0.44% | -0.44% | -1.23% | 0.16% | -0.62% | 0.35% | |
| EUR | 0.24% | -0.18% | -0.20% | -0.98% | 0.40% | -0.35% | 0.59% | |
| GBP | 0.42% | 0.18% | -0.02% | -0.81% | 0.58% | -0.20% | 0.77% | |
| CAD | 0.44% | 0.20% | 0.02% | -0.79% | 0.60% | -0.18% | 0.79% | |
| AUD | 1.22% | 0.98% | 0.79% | 0.79% | 1.37% | 0.61% | 1.57% | |
| JPY | -0.16% | -0.40% | -0.60% | -0.60% | -1.39% | -0.78% | 0.19% | |
| NZD | 0.61% | 0.38% | 0.17% | 0.18% | -0.61% | 0.77% | 0.96% | |
| CHF | -0.35% | -0.60% | -0.78% | -0.79% | -1.55% | -0.19% | -0.96% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The disappointing PMI data from the US triggered a US Dollar (USD) selloff in the American session on Tuesday and allowed EUR/USD to push higher. The S&P Global Manufacturing PMI dropped to 49.9 in April's flash estimate and the Services PMI declined to 50.9 from 51.7 in March.
Early Wednesday, the cautious market stance supports the USD and makes it difficult for EUR/USD to build on Tuesday's gains.
Meanwhile, the data from Germany showed that IFO - Business Climate Index improved to 89.4 in April from 87.9, while the Current Assessment Index rose to 88.9 from 88.1. Although these figures failed to provide a boost to the Euro, they seem to be helping the currency limit its losses.
Later in the day, Durable Goods Orders data for March will be featured in the US economic docket. In case this data comes in weaker than forecast, the USD could lose traction in the second half of the day.
Investors will also continue to pay close attention to the action in the US stock markets. A continuation of the risk rally could put additional weight on the USD's shoulders.
EUR/USD Technical Analysis
Despite the latest pullback, the 20-period Simple Moving Average (SMA) on the 4-hour chart stays above the 50-period SMA after completing a bullish cross on Tuesday. Additionally, the Relative Strength Index (RSI) indicator stays above 50.
On the downside, 1.0650 (static level, 50-period SMA) aligns as first support before 1.0600 (static level). In case the pair manages to stabilize above 1.0700 (Fibonacci 23.6% retracement of the latest downtrend), technical buyers could take action. In this scenario, 1.0730 (100-period SMA) could be seen as next resistance before 1.0750 (Fibonacci 38.2% retracement) and 1.0790 - 1.0800 (Fibonacci 50% retracement, 200-period SMA).
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.
