EUR/USD Forecast: Euro trades dangerously close to key technical level
- EUR/USD fluctuates in a tight channel above 1.1300 on Wednesday.
- The pair could react to FOMC Minutes later in the day.
- The 200-period SMA on the 4-hour chart aligns as a pivot level near 1.1315.
EUR/USD moves up and down in a narrow channel above 1.1300 as markets await the next catalyst. Although the technical picture doesn't yet point to a bearish tilt in the near term, sellers could take action if the pair flips the 200-period Simple Moving Average (SMA) on the 4-hour chart into resistance.
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 | 0.39% | 0.32% | 1.24% | 0.67% | 0.81% | 0.38% | 0.80% | |
| EUR | -0.39% | -0.07% | 0.88% | 0.28% | 0.41% | -0.01% | 0.41% | |
| GBP | -0.32% | 0.07% | 0.62% | 0.35% | 0.48% | 0.06% | 0.48% | |
| JPY | -1.24% | -0.88% | -0.62% | -0.57% | -0.46% | -0.93% | -0.45% | |
| CAD | -0.67% | -0.28% | -0.35% | 0.57% | 0.15% | -0.29% | 0.13% | |
| AUD | -0.81% | -0.41% | -0.48% | 0.46% | -0.15% | -0.46% | -0.01% | |
| NZD | -0.38% | 0.00% | -0.06% | 0.93% | 0.29% | 0.46% | 0.42% | |
| CHF | -0.80% | -0.41% | -0.48% | 0.45% | -0.13% | 0.01% | -0.42% |
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 benefited from upbeat macroeconomic data releases on Tuesday and forced EUR/USD to stay on the back foot. Additionally, the improving sentiment around the US economy, as reflected by the recovering demand for US Treasury bonds and rising stock indices, further supported the USD. The benchmark 10-year US T-bond yield fell more than 1% on the day and the S&P 500 Index gained about 2%. US stock index futures trade mixed on Wednesday, suggesting that investors adopt a cautious stance midweek.
Meanwhile, the European Central Bank's latest Consumer Expectations Survey that inflation expectations for the next 12 months increased to 3.1% from 2.9% in the previous survey. Inflation expectations for 3 years and 5 years ahead remained unchanged at 2.5% and 2.1%, respectively. This headline seems to be helping the Euro limit its losses.
In the late American session, the Federal Reserve will publish the minutes of the May policy meeting, at which it decided to leave the policy rate steady at 4.25%-4.5%.
In case the Fed's publication shows that policymakers are leaning towards a single rate cut later this year, against the two rate cuts projected in the dot plot published in March, the immediate market reaction could boost the USD and trigger a leg lower in EUR/USD. According to the CME FedWatch Tool, markets are currently pricing in about a 70% probability of the Fed lowering the policy rate at least twice this year.
EUR/USD Technical Analysis
EUR/USD was last seen trading slightly above 1.1315, where the 200-period SMA on the 4-hour chart is located. If the pair falls below this level and starts using it as resistance, technical sellers could take action. In this scenario, 1.1270 (Fibonacci 38.2% retracement level of the latest uptrend, 100-period SMA) could be seen as next support before 1.1180 (Fibonacci 50% retracement).
Looking north, interim resistance could be spotted at 1.1350 (20-period SMA) ahead of 1.1380 (Fibonacci 23.6% retracement), 1.1430 (static level) and 1.1500 (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.
