EUR/USD Forecast: Euro turns overbought ahead of Lagarde, Powell
- EUR/USD trades above 1.1800 in the European session on Tuesday.
- ECB President Lagarde and Fed Chairman Powell will speak at a policy panel.
- The technical outlook points to overbought conditions for the pair in the near term.
EUR/USD extends its rally and trades at its highest level since September 2021 above 1.1800. As investors await comments from central bankers, the pair's technical outlook points to overbought conditions.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.65% | -0.48% | -0.92% | -0.70% | -0.78% | -1.02% | -1.13% | |
| EUR | 0.65% | 0.12% | -0.27% | -0.06% | -0.15% | -0.37% | -0.49% | |
| GBP | 0.48% | -0.12% | -0.59% | -0.19% | -0.28% | -0.52% | -0.63% | |
| JPY | 0.92% | 0.27% | 0.59% | 0.22% | 0.20% | -0.05% | -0.16% | |
| CAD | 0.70% | 0.06% | 0.19% | -0.22% | -0.13% | -0.33% | -0.43% | |
| AUD | 0.78% | 0.15% | 0.28% | -0.20% | 0.13% | -0.24% | -0.35% | |
| NZD | 1.02% | 0.37% | 0.52% | 0.05% | 0.33% | 0.24% | -0.11% | |
| CHF | 1.13% | 0.49% | 0.63% | 0.16% | 0.43% | 0.35% | 0.11% |
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) failed to shake off the bearish pressure on Monday and allowed EUR/USD to gather bullish momentum. White House press secretary Karoline Leavitt told reporters on Monday that US President Donald Trump sent a handwritten note to Federal Reserve (Fed) Chairman Powell, urging him to lower interest rates. She added that Trump believes interest rates should be lowered to about 1%. Additionally, the risk-positive market atmosphere, as reflected by the bullish action seen in Wall Street's main indexes, put additional weight on the USD's shoulders.
Meanwhile, comments from European Central Bank (ECB) officials help the Euro hold its ground early Tuesday. ECB chief economist Philip Lane noted that inflation remains around the target, policymaker Pierre Wunsch said that a policy move, if any, is more likely to happen towards the end of the year. Finally, ECB Governing Council member Joachim Nagel said that inflation is currently at a stable phase but added that they cannot relax too much about rising inflation.
Later in the day, ECB President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will participate in a policy panel at the ECB Forum on Central Banking in Sintra, Portugal.
In case Powell continues to push back against the possibility of a rate cut in July, the USD could stay resilient against its peers and limit EUR/USD's upside. On the flip side, the Euro is likely to gather strength if Lagarde reiterates that they have likely reached the end of the policy-easing cycle. Conversely, the Euro could come under pressure in case she notes that they are concerned about the growth outlook in the Eurozone.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 80 and EUR/USD trades above the upper limit of the ascending regression channel, highlighting overbought conditions in the near term.
On the downside, 1.1800 (static level, round level) aligns as immediate support before 1.1740 (20-period Simple Moving Average) and 1.1700-1.1690 (static level, mid-point of the ascending channel). Looking north, the first resistance level could be spotted at 1.1840 (static level) before 1.1900 (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.
