EUR/USD Forecast: Euro turns bearish as market mood sours
- EUR/USD trades deep in negative territory below 1.1650.
- Global bond selloff causes investors to adopt a cautious stance.
- The technical outlook points to a buildup of bearish momentum.
Following Monday's advance, EUR/USD reversed its direction in the European session on Tuesday and dropped below 1.1650. The pair's near-term technical outlook points to a buildup of bearish momentum as safe-haven flows dominate the action in financial markets.
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 | 0.49% | 0.74% | 1.07% | 0.29% | 0.54% | 0.56% | 0.69% | |
| EUR | -0.49% | 0.23% | 0.54% | -0.20% | 0.03% | 0.06% | 0.20% | |
| GBP | -0.74% | -0.23% | 0.18% | -0.43% | -0.20% | -0.17% | 0.02% | |
| JPY | -1.07% | -0.54% | -0.18% | -0.72% | -0.53% | -0.48% | -0.35% | |
| CAD | -0.29% | 0.20% | 0.43% | 0.72% | 0.25% | 0.27% | 0.45% | |
| AUD | -0.54% | -0.03% | 0.20% | 0.53% | -0.25% | 0.04% | 0.21% | |
| NZD | -0.56% | -0.06% | 0.17% | 0.48% | -0.27% | -0.04% | 0.18% | |
| CHF | -0.69% | -0.20% | -0.02% | 0.35% | -0.45% | -0.21% | -0.18% |
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) struggled to find demand on Monday as financial markets in the US remained closed in observance of the Labor Day holiday. Early Tuesday, the souring market mood helps the USD gather strength and causes EUR/USD to stretch lower.
The selloff seen in global bond markets forces investors to stay away from risk-sensitive assets. At the time of press, US stock index futures were down between 0.5% and 0.7%, while Eurostoxx 50 Index was losing 0.5%.
Meanwhile, the data from the Eurozone showed that the Harmonized Index of Consumer Prices (HICP), the European Central Bank's (ECB) preferred gauge of inflation, edged higher to 2.1% in August from 2% in July. This print, however, failed to support the Euro.
Later in the day, the Institute for Supply Management's (ISM) will publish the Manufacturing Purchasing Managers' Index (PMI) data for August. The headline PMI is expected to rise slightly to 49 from 48 in July. A print above 50, which would highlight an expansion in the manufacturing sector's business activity, could support the USD with the immediate reaction. Conversely, a weaker-than-forecast PMI reading, especially if combined with a noticeable decline in the Employment subindex of the PMI survey, could limit the USD's gains.
Unless there is an improvement in market mood, any potential negative impact of the PMI data on the USD could remain short-lived.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart declines toward 40 and EUR/USD trades slightly below the 200-period Simple Moving Average (SMA), highlighting a buildup of bearish momentum.
On the downside, 1.1600 (static level, round level) aligns as the next support level before 1.1540 (static level) and 1.1500 (static level, round level). Looking north, immediate resistance level could be spotted at 1.1645-1.1660 (200-period SMA, 100-period SMA) ahead of 1.1690-1.1700 (20-period SMA, round level) and 1.1730 (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.
