EUR/USD Forecast: Euro turns bullish, closes in on key resistance
- EUR/USD continues to push higher after posting strong gains on Thursday.
- Technical buyers could take action in case the pair flips 1.1100 into support.
- European Central Bank lowered the benchmark interest rate by 25 basis points.
After closing the first three days of the week in negative territory, EUR/USD gathered bullish momentum on Thursday and registered strong gains. The pair continues to edge higher toward 1.1100 in the European morning on Friday.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.11% | -1.24% | 0.06% | -0.73% | -0.18% | 0.36% | |
| EUR | 0.05% | -0.11% | -1.12% | 0.11% | -0.72% | -0.11% | 0.40% | |
| GBP | 0.11% | 0.11% | -1.13% | 0.23% | -0.61% | -0.02% | 0.50% | |
| JPY | 1.24% | 1.12% | 1.13% | 1.30% | 0.52% | 1.04% | 1.79% | |
| CAD | -0.06% | -0.11% | -0.23% | -1.30% | -0.75% | -0.26% | 0.46% | |
| AUD | 0.73% | 0.72% | 0.61% | -0.52% | 0.75% | 0.59% | 1.09% | |
| NZD | 0.18% | 0.11% | 0.02% | -1.04% | 0.26% | -0.59% | 0.53% | |
| CHF | -0.36% | -0.40% | -0.50% | -1.79% | -0.46% | -1.09% | -0.53% |
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 European Central Bank (ECB) lowered the benchmark interest rate, the deposit facility, by 25 basis points (bps) to 3.5% as expected. The ECB also lowered interest rates on the marginal lending facility and the main refinancing operations by 60 bps. "The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction," the ECB noted in the policy statement. In the post-meeting press conference, ECB President Christine Lagarde refrained from hinting at the timing of the next rate cut.
Although the ECB event failed to provide a boost to the Euro, the renewed selling pressure surrounding the US Dollar (USD) helped EUR/USD turn north.
On a yearly basis, the Producer Price Index (PPI) rose 1.7% in August in the US, down from 2.1% in July and below the market expectation of 1.8%. The probability of a 50 bps Federal Reserve (Fed) rate cut in September climbed above 40% after this data, per CME FedWatch Tool, and triggered a USD selloff.
The US economic calendar will feature the University of Michigan's Consumer Sentiment Survey for September, which is unlikely to influence the USD's valuation.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart climbed above 60 and EUR/USD rose slightly above the 100-period Simple Moving Average (SMA), reflecting a buildup of bullish momentum. In case the pair clears 1.1090-1.1100 resistance area (100-period SMA, Fibonacci 23.6% retracement of the latest uptrend), it could target 1.1160 (static level) and 1.1200 (end-point of the uptrend) next.
On the downside, 1.1060 (50-period SMA) aligns as first support before 1.1040 (Fibonacci 38.2% retracement) and 1.1020 (200-period SMA).
Euro FAQs
The Euro is the currency for the 20 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.
