EUR/USD Forecast: Euro struggles to extend rebound
- EUR/USD fluctuates in a narrow channel slightly above 1.0750 early Tuesday.
- The pair needs to clear 1.0790-1.0800 hurdle to push higher.
- Risk perception and comments from central bank officials could drive the pair's action.
EUR/USD stays in a consolidation phase slightly above 1.0750 in the European morning on Tuesday after posting small gains on Monday. The pair's near-term technical outlook points to a loss of bullish momentum.
In the absence of high-tier data releases, EUR/USD struggled to find direction on Monday. Although the improving risk mood made it difficult for the US Dollar (USD) to find demand, hawkish comments from Federal Reserve (Fed) officials helped the currency limit its losses.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | -0.05% | -0.90% | -0.11% | -0.28% | -0.14% | -0.25% | |
| EUR | 0.02% | 0.06% | -0.76% | -0.03% | -0.05% | -0.05% | -0.13% | |
| GBP | 0.05% | -0.06% | -0.87% | -0.08% | -0.12% | -0.11% | -0.19% | |
| JPY | 0.90% | 0.76% | 0.87% | 0.79% | 0.65% | 0.80% | 0.67% | |
| CAD | 0.11% | 0.03% | 0.08% | -0.79% | -0.27% | -0.01% | -0.07% | |
| AUD | 0.28% | 0.05% | 0.12% | -0.65% | 0.27% | -0.01% | -0.03% | |
| NZD | 0.14% | 0.05% | 0.11% | -0.80% | 0.00% | 0.01% | -0.06% | |
| CHF | 0.25% | 0.13% | 0.19% | -0.67% | 0.07% | 0.03% | 0.06% |
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).
Richmond Fed President Thomas Barkin said that given the strong labor market, the Fed still has time to gain confidence that inflation will fall toward the 2% target. Additionally, NY Fed President John Williams noted that it was worrisome when monthly inflation prints come in higher.
Earlier in the day, the data from Germany showed that Factory Orders contracted 0.4% on a monthly basis in March. This reading came in worse than the market expectation for an increase of 0.5% and weighed on the Euro.
Eurostat will release Retail Sales data for March later in the session. The US economic docket will feature RealClearMarkets/TIPP Economic Optimism data for May and Consumer Credit Change for March.
Meanwhile, US stock index futures trade virtually unchanged in the early European session. In case Wall Street's main indexes manage to build on Monday's gains, the USD could find it difficult to stay resilient against its rivals and allow EUR/USD to stretch higher.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 60, highlighting a loss of bullish momentum in the near term. On the downside, 1.0750 (200-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend) aligns as key support before 1.0720 (50-period SMA) and 1.0700 (Fibonacci 23.6% retracement).
Resistances are located at 1.0790-1.0800 (Fibonacci 50% retracement), 1.0830 (Fibonacci 61.8% retracement) and 1.0900 (Fibonacci 78.6% 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.
