EUR/USD Forecast: Euro struggles to find demand despite EU-US trade deal
- EUR/USD trades below 1.1700 in the European session on Monday.
- The EU and the US reached a framework trade agreement.
- The technical outlook highlights a buildup of bearish momentum.
After gaining 1% in the previous week, EUR/USD stays under bearish pressure on Monday and trades below 1.1700. The technical outlook points to a bearish tilt in the near term.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.72% | 0.10% | 0.39% | 0.19% | 0.87% | 0.71% | 0.27% | |
| EUR | -0.72% | -0.65% | -0.29% | -0.53% | 0.15% | -0.01% | -0.45% | |
| GBP | -0.10% | 0.65% | 0.18% | 0.12% | 0.80% | 0.64% | 0.19% | |
| JPY | -0.39% | 0.29% | -0.18% | -0.19% | 0.44% | 0.30% | 0.02% | |
| CAD | -0.19% | 0.53% | -0.12% | 0.19% | 0.65% | 0.52% | 0.09% | |
| AUD | -0.87% | -0.15% | -0.80% | -0.44% | -0.65% | -0.16% | -0.60% | |
| NZD | -0.71% | 0.00% | -0.64% | -0.30% | -0.52% | 0.16% | -0.45% | |
| CHF | -0.27% | 0.45% | -0.19% | -0.02% | -0.09% | 0.60% | 0.45% |
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 European Union (EU) and the United States (US) announced over the weekend that they have reached a framework trade agreement that sets a blanket 15% tariff on goods traded between them. European Commission President Ursula von der Leyen said on Sunday that they will not impose retaliatory tariffs and added that they pledged $600 billion in investment in the US on top of existing expenditures.
Despite this development, the Euro struggles to find demand in the early European session on Monday as investors reassess the European Central Bank's (ECB) policy outlook. According to Reuters, markets are currently pricing in a 65% chance of a 25 basis points cut in the ECB's key rates by December.
On the flip side, the US Dollar (USD) stays resilient against its rivals on improving prospects for the US economic outlook. In addition to the trade deal with the EU, news suggesting that the US and China are looking to extend their tariff truce by another three months help the USD hold its ground.
The economic calendar will not feature any high-impact data releases on Monday. Later in the week, the Federal Reserve (Fed) will announce monetary policy decisions and Gross Domestic Product (GDP) data from both the Eurozone and the US will be watched closely by market participants.
Investors could refrain from taking large positions ahead of these key events but the current market atmosphere could make it difficult for EUR/USD to stage a decisive rebound.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 40 and EUR/USD closed the last 4-hour candle below the 100-period Simple Moving Average (SMA), reflecting a buildup of bearish momentum.
On the downside, 1.1660-1.1650 (200-period SMA, Fibonacci 23.6% retracement of the latest uptrend) aligns as the next support area before 1.1600 (static level, round level) and 1.1540 (Fibonacci 38.2% retracement). Looking north, resistance levels could be spotted at 1.1700 (static level, round level, 100-period SMA), 1.1760 (static level) and 1.1800 (static level, round level).
Euro FAQs
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%).
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.
