EUR/USD Forecast: Euro struggles to clear technical resistance level
- EUR/USD edges lower after closing in positive territory on Monday.
- The technical outlook is yet to point to a buildup of directional momentum.
- The US economic calendar will feature producer inflation data.
EUR/USD closed the first trading day of the week marginally higher but failed to gather further bullish momentum. The pair holds above 1.0900 and continues to trade within its week-old range.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | -0.17% | 2.56% | -0.66% | -1.58% | -1.59% | 1.81% | |
| EUR | -0.28% | -0.42% | 2.26% | -0.95% | -1.87% | -1.93% | 1.53% | |
| GBP | 0.17% | 0.42% | 2.71% | -0.51% | -1.45% | -1.50% | 1.91% | |
| JPY | -2.56% | -2.26% | -2.71% | -3.15% | -4.02% | -4.11% | -0.60% | |
| CAD | 0.66% | 0.95% | 0.51% | 3.15% | -0.93% | -1.00% | 2.44% | |
| AUD | 1.58% | 1.87% | 1.45% | 4.02% | 0.93% | -0.04% | 3.42% | |
| NZD | 1.59% | 1.93% | 1.50% | 4.11% | 1.00% | 0.04% | 3.52% | |
| CHF | -1.81% | -1.53% | -1.91% | 0.60% | -2.44% | -3.42% | -3.52% |
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 pullback seen in the US Treasury bond yields limited the US Dollar's (USD) gains on Monday and helped EUR/USD edge higher. Early Tuesday, the benchmark 10-year US T-bond yield clings to small gains above 3.9% and allows the USD to stay resilient against its major rivals, capping the pair's upside.
The US Bureau of Labor Statistics will release the Producer Price Index (PPI) data for July later in the day. On a monthly basis, the PPI is forecast to rise 0.1% following the 0.2% increase recorded in June, while the core PPI is seen rising 0.2%. In case the monthly core PPI increases more than expected, the immediate reaction could provide a boost to the USD. Investors, however, could refrain from taking large positions ahead of the July Consumer Price Index, which will be released on Wednesday.
Meanwhile, the data from Germany showed that the ZEW Survey - Economic Sentiment declined sharply to 17.9 in August from 41.8 in July. Similarly, the Economic Sentiment for the Eurozone dropped to 17.9 from 43.7 in the same period, making it hard for the Euro to find demand.
"The economic outlook for Germany is breaking down," the ZEW Institute said. "In the current survey, we observe the strongest decline of the economic expectations over the past two years."
EUR/USD Technical Analysis
EUR/USD continues to trade in the one-week-old horizontal range between 1.0900 and 1.0940. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart retreats toward 50 early Tuesday, reflecting a lack of directional momentum.
In case EUR/USD breaks below 1.0900, 1.0880-1.0870, where the 100-period and the 20-day Simple Moving Averages (SMA) are located, could be seen as next support before 1.0850 (200-period SMA).
On the upside, resistances are located at 1.0940 (static level), 1.0960 (static level) and 1.1000 (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.
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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.
