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EUR/USD Forecast: Euro unlikely to break out of range

  • EUR/USD trades in a tight channel at around 1.0400 on Friday.
  • The cautious market mood is likely to cap the pair's upside.
  • The near-term technical outlook points to a lack of directional momentum.

EUR/USD registered marginal gains after returning from the Christmas break on Thursday but failed to gather bullish momentum. Early Friday, the pair trades in a narrow channel at around 1.0400.

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.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.25%0.38%0.90%0.30%0.49%0.42%0.95%
EUR-0.25% 0.09%0.56%0.02%0.30%0.15%0.68%
GBP-0.38%-0.09% 0.45%-0.07%0.21%0.06%0.60%
JPY-0.90%-0.56%-0.45% -0.58%-0.34%-0.45%-0.04%
CAD-0.30%-0.02%0.07%0.58% 0.23%0.12%0.64%
AUD-0.49%-0.30%-0.21%0.34%-0.23% -0.15%0.37%
NZD-0.42%-0.15%-0.06%0.45%-0.12%0.15% 0.50%
CHF-0.95%-0.68%-0.60%0.04%-0.64%-0.37%-0.50% 

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 data published by the US Census Bureau showed on Thursday that Initial Jobless Claims edged lower to 219,000 in the week ending December 21 from 220,000 in the previous week. This reading came in better than the market expectation of 224,000 but failed to influence the US Dollar's (USD) valuation. In the second half of the day, the mixed action seen in Wall Street's main indexes limited the pair's upside.

The economic calendar will not offer any high-tier data releases on Friday. Meanwhile, US stock index futures trade in negative territory, reflecting a cautious market stance in the European session. Unless there is a noticeable improvement in risk mood in the American session, the pair could stay on the back foot.

Nevertheless, trading conditions are likely to remain thin, not allowing EUR/USD to make a decisive move in either direction.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, highlighting EUR/USD's indecisiveness. 

First resistance for EUR/USD could be spotted at 1.0430-1.0440 (50-period Simple Moving Average (SMA), static level) before 1.0475, (100-period SMA) and 1.0500 (200-period SMA). On the downside, 1.0350 (static level) and 1.0300 (static level, round level) could be seen as next support levels if the pair flips 1.0400 (static level, round level) into resistance.

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

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.

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