EUR/USD Forecast: Euro struggles to extend recovery after Fed

EUR/USD retreats below 1.0800 after posting gains on Thursday.
The Fed lowered the policy rate by 25 bps as expected.
The near-term technical outlook points to a lack of bullish momentum.

Following Wednesday's sharp decline, EUR/USD gained traction and rose nearly 0.7% on Thursday. The pair, however, struggles to keep its footing and trades below 1.0800 in the European morning on Friday.

After outperforming its rivals with the initial reaction to the Donald Trump's victory in the presidential election on Wednesday, the US Dollar (USD) lost its strength as investors booked profits ahead of the Federal Reserve's (Fed) monetary policy announcements.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.51%	-0.38%	0.40%	-0.27%	-1.39%	-0.45%	0.64%
EUR	-0.51%		-0.92%	-0.53%	-1.16%	-1.58%	-1.34%	-0.27%
GBP	0.38%	0.92%		0.12%	-0.24%	-0.67%	-0.42%	0.66%
JPY	-0.40%	0.53%	-0.12%		-0.66%	-1.23%	-0.63%	0.55%
CAD	0.27%	1.16%	0.24%	0.66%		-0.92%	-0.21%	0.90%
AUD	1.39%	1.58%	0.67%	1.23%	0.92%		0.25%	1.33%
NZD	0.45%	1.34%	0.42%	0.63%	0.21%	-0.25%		1.09%
CHF	-0.64%	0.27%	-0.66%	-0.55%	-0.90%	-1.33%	-1.09%

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The Fed lowered the policy rate by 25 basis points to the range of 4.5%-4.75% following the November policy meeting, as anticipated. In its policy statement, the US central bank repeated that risks to the job market and inflation were "roughly in balance." In the post-meeting press conference, Fed Chairman Jerome Powell refrained from hinting whether they will ease the policy further in December and explained that the results of the presidential election will have no effect on the monetary policy in the near term.

The market reaction to the Fed event remained largely muted. According to the CME FedWatch Tool, the probability of a 25 bps rate cut in December remains largely unchanged at about 70%. Early Friday, the cautious market mood helps the USD hold its ground and doesn't allow EUR/USD to extend its rebound.

The University of Michigan's (UoM) preliminary Consumer Sentiment Index for November will be featured in the US economic docket. In the meantime, US stock index futures were last seen trading virtually unchanged on the day. In case markets remain cautious following Wall Street's opening bell, the USD could stay resilient against its peers and limit EUR/USD's upside.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 50, suggesting that the bearish bias remains intact following Thursday's correction.

On the downside, static support is located at 1.0750 ahead of 1.0700 (static level, round level) and 1.0680 (static level). Looking north, initial resistance aligns at 1.0800 (static level, round level) before 1.0870 (200-day Simple Moving Average).

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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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