EUR/USD Forecast: Euro tests key resistance ahead of Lagarde and Powell speeches
- EUR/USD trades above 1.0500 in the European morning on Wednesday.
- ECB President Lagarde and Fed Chairman Powell will be delivering speeches.
- The technical outlook is yet to highlight a buildup of recovery momentum in the near term.
EUR/USD found its footing following Monday's drop but struggled to gather recovery momentum on Tuesday. The pair trades in a tight channel above 1.0500 in the European morning on Wednesday as the market focus shifts to US data releases and speeches by European Central Bank (ECB) President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.64% | 0.45% | 0.41% | 0.51% | 1.10% | 1.09% | 0.68% | |
| EUR | -0.64% | -0.22% | -0.22% | -0.11% | 0.55% | 0.46% | 0.07% | |
| GBP | -0.45% | 0.22% | -0.04% | 0.09% | 0.78% | 0.68% | 0.26% | |
| JPY | -0.41% | 0.22% | 0.04% | 0.11% | 0.73% | 0.72% | 0.22% | |
| CAD | -0.51% | 0.11% | -0.09% | -0.11% | 0.74% | 0.57% | 0.15% | |
| AUD | -1.10% | -0.55% | -0.78% | -0.73% | -0.74% | -0.10% | -0.51% | |
| NZD | -1.09% | -0.46% | -0.68% | -0.72% | -0.57% | 0.10% | -0.39% | |
| CHF | -0.68% | -0.07% | -0.26% | -0.22% | -0.15% | 0.51% | 0.39% |
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 cautious market mood and the better-than-expected JOLTS Job Openings data for October from the US helped the US Dollar (USD) stabilize in the second half of the day on Tuesday and capped the EUR/USD's upside.
ECB President Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels, starting at 13:30 GMT. ECB policymakers have been voicing their supports for another rate cut in December, citing growing concerns over the economic outlook. In case Lagarde adopts a similar tone, EUR/USD could have a difficult time stretching higher.
In the American session, ADP Employment Change and ISM Services PMI data for November will be watched closely by market participants. Investors expect the private sector employment to increase by 150,000. A positive surprise in this data, with a reading at or above 200,000, could help the USD gather strength and drag EUR/USD lower.
Later in the day, Fed Chairman Powell will participate in a moderated discussion at the New York Times DealBook Summit, starting at 18:45 GMT. According to the CME FedWatch Tool, markets currently see a nearly 75% probability of a 25 basis points (bps) rate cut in December. In case Powell voices his willingness to ease policy further at the last meeting of the year, the market positioning suggests that there is room for further USD weakness.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50, reflecting a lack of recovery momentum.
EUR/USD faces immediate resistance at 1.0520-1.0530, where the Fibonacci 23.6% retracement of the latest downtrend and the 100-period Simple Moving Average (SMA) are located. In case the pair rises above this area and starts using it as support, technical buyers could take action. In this scenario, 1.0600 (Fibonacci 38.2% retracement) could be seen as next resistance before 1.0660-1.0670 (Fibonacci 50% retracement, 200-period SMA).
Looking south, supports could be spotted at 1.0440 (static level) and 1.0400 (end-point of the downtrend, static 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.
