EUR/USD Forecast: Euro tests key resistance level
- EUR/USD trades in positive territory above 1.0400 on Tuesday.
- The pair could extend its uptrend once it flips 1.0410-1.0420 into support.
- Eurozone inflation report and US data will be watched closely by market participants.
EUR/USD started the week on a bullish note and registered strong gains on Monday as the US Dollar (USD) remained under persistent selling pressure throughout the day. The pair holds its ground and trades in positive territory above 1.0400 in the European morning on Tuesday.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.98% | -1.00% | 0.25% | -0.96% | -0.87% | -1.00% | -0.52% | |
| EUR | 0.98% | -0.01% | 1.23% | 0.08% | 0.16% | 0.03% | 0.51% | |
| GBP | 1.00% | 0.01% | 1.27% | 0.11% | 0.18% | 0.05% | 0.53% | |
| JPY | -0.25% | -1.23% | -1.27% | -1.21% | -1.10% | -1.22% | -0.54% | |
| CAD | 0.96% | -0.08% | -0.11% | 1.21% | 0.02% | -0.08% | 0.42% | |
| AUD | 0.87% | -0.16% | -0.18% | 1.10% | -0.02% | -0.13% | 0.35% | |
| NZD | 1.00% | -0.03% | -0.05% | 1.22% | 0.08% | 0.13% | 0.48% | |
| CHF | 0.52% | -0.51% | -0.53% | 0.54% | -0.42% | -0.35% | -0.48% |
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 USD weakened against its rivals on Monday in reaction to the Washington Post report that said US President-elect Donald Trump's aides were considering tariffs that would be applied to every country but only cover critical imports.
Although Trump disputed this claim by calling the story "just another example of fake news," the USD failed to stage a decisive rebound as risk flows dominated the market action.
Eurostat will publish December inflation data on Tuesday. On a yearly basis, the Harmonized Index of Consumer Prices (HICP) is forecast to rise 2.4% in December, up from the 2.2% increase recorded in November. A stronger increase than expected in the annual HICP could help the Euro preserve its strength.
In the second half of the day, the ISM Services PMI report for December and JOLTS Job Openings data for November will be featured in the US economic docket. The headline ISM Services PMI is seen rising to 53 from 52.1 in November. A reading below 50 could trigger another bout of USD selloff and lift EUR/USD. On the other hand, a print of 55 or higher could help the USD find a foothold and limit the pair's upside.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60, reflecting the bullish bias in the near term. The Fibonacci 50% retracement level of the latest downtrend and the 100-period Simple Moving Average (SMA) form a key resistance area at 1.0410-1.0420. In case EUR/USD rises above this area and starts using it as support, 1.0460 (200-period SMA; Fibonacci 61.8% retracement) could be seen as next resistance before 1.0520 (Fibonacci 78.6% retracement).
Looking south, supports could be spotted at 1.0370 (50-period SMA, Fibonacci 38.2% retracement) and 1.0320 (Fibonacci 23.6% retracement, 20-period SMA).
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.
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.
