EUR/USD Forecast: Euro struggles to rebound as focus shifts to Fed
- EUR/USD trades near 1.1550 in the European session on Wednesday.
- The US economic calendar will feature private employment and GDP data.
- The Fed is widely anticipated to leave the interest rate unchanged.
After posting losses for two consecutive days and losing more than 1.5% in this period, EUR/USD holds steady at around 1.1550 in the European session on Wednesday as investors move to the sidelines ahead of critical data releases and Federal Reserve (Fed) policy announcements.
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 | 1.71% | 0.49% | 0.13% | 0.46% | 1.13% | 0.96% | 0.90% | |
| EUR | -1.71% | -1.24% | -1.54% | -1.25% | -0.59% | -0.75% | -0.81% | |
| GBP | -0.49% | 1.24% | -0.49% | -0.01% | 0.66% | 0.49% | 0.42% | |
| JPY | -0.13% | 1.54% | 0.49% | 0.33% | 0.94% | 0.81% | 0.93% | |
| CAD | -0.46% | 1.25% | 0.01% | -0.33% | 0.64% | 0.50% | 0.44% | |
| AUD | -1.13% | 0.59% | -0.66% | -0.94% | -0.64% | -0.17% | -0.24% | |
| NZD | -0.96% | 0.75% | -0.49% | -0.81% | -0.50% | 0.17% | -0.07% | |
| CHF | -0.90% | 0.81% | -0.42% | -0.93% | -0.44% | 0.24% | 0.07% |
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 US Dollar (USD) preserved its strength on Tuesday and forced EUR/USD to stay on the back foot. In the second half of the day, mixed macroeconomic data releases from the US limited the USD's gains and helped the pair find support. The Conference Board's Consumer Confidence Index improved to 97.2 in July from 95.2 in June. On a negative note, JOLTS Job Openings declined to 7.43 million in June from 7.77 in May, falling short of the market expectation of 7.55.
ADP Employment Change for July and the second-quarter Gross Domestic Product (GDP) data will be featured in the US economic calendar. Markets expect private sector payrolls to rise by 78,000 following the 33,000 decline reported in June. The GDP is forecast to expand at an annual rate of 2.4% after the 0.5% contraction recorded in the first quarter. A significant negative surprise in the GDP, with a reading below 1%, could weigh on the USD with the immediate reaction. On the other hand, investors could refrain from taking large positions if the GDP data come in near the market consensus.
Later in the day, the Fed is widely anticipated to leave the policy rate unchanged at the range of 4.25%-4.5%. Governors Christopher Waller and Michelle Bowman could vote in favor of a 25 basis points rate reduction. In case the policy statement shows that there were other policymakers who voted for a rate cut, the USD could come under selling pressure. On the other hand, the USD could hold its ground and make it difficult for EUR/USD to gain traction if Fed Chairman Jerome Powell avoids hinting at a rate cut in September and reiterates the need for patience, citing the uncertainty surrounding the inflation outlook. According to the CME FedWatch Tool, markets are currently pricing in about a 63% probability of a rate cut in September, suggesting that the USD faces a two-way risk heading into the event.
Meanwhile, the data from Germany showed earlier in the day that the GDP expanded at an annual rate of 0.4% in the second quarter. This reading came in better than the market expectation of 0.2% but failed to boost the Euro.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly above 30 after dropping to 20 on Tuesday, suggesting that the bearish outlook remains intact following a technical correction.
On the upside, 1.1600 (static level) aligns as an interim resistance level before 1.1650-1.1660 (Fibonacci 23.6% retracement, 200-period Simple Moving Average) and 1.1700 (static level, round level).
Looking south, support levels could be spotted at 1.1540 (Fibonacci 38.2% retracement), 1.1500 (static level, round level) and 1.1450 (Fibonacci 50% retracement).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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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.
