EUR/USD Forecast: Hawkish ECB commentary helps Euro hold above key support
- EUR/USD fluctuates in a tight channel above 1.0900 midweek.
- ECB's Villeroy said a rate cut in spring was probable.
- US Dollar holds steady following February Consumer Price Index data.
EUR/USD came within a touching distance of 1.0900 in the early American session on Tuesday but managed to erase its daily losses. The pair fluctuates in a tight channel below 1.0950 in the early European session on Wednesday.
The data from the US showed on Tuesday that annual inflation, as measured by the change in the Consumer Price Index (CPI), ticked up to 3.2% in February from 3.1% in January. On a monthly basis, the Core CPI, which excludes volatile food and energy prices, rose 0.4%, matching January's increase and coming in above the market expectation of 0.3%.
The benchmark 10-year US Treasury bond yield recovered above 4.1% with the initial reaction to US inflation data and helped the US Dollar find demand. Later in the American session, however, the risk-positive market atmosphere, as reflected by rallying equity indexes, made it difficult for the currency to continue to gather strength.
Meanwhile, European Central Bank (ECB) policymakers delivered some relatively hawkish comments, helping the Euro stay resilient against its peers. ECB policymaker Francois Villeroy de Galhau reiterated that a rate cut in spring was probable and noted that victory against inflation was within sight. Additionally, Governing Council member Pierre Wunsch argued that the ECB should act "before so long" and said that they don't have to wait until wage inflation falls to 3 before lowering key rates.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | 0.00% | -0.04% | -0.08% | 0.03% | -0.24% | 0.09% | |
| EUR | 0.02% | 0.01% | -0.03% | -0.06% | 0.05% | -0.24% | 0.10% | |
| GBP | 0.01% | -0.02% | -0.03% | -0.07% | 0.05% | -0.23% | 0.10% | |
| CAD | 0.04% | 0.01% | 0.04% | -0.05% | 0.07% | -0.20% | 0.13% | |
| AUD | 0.09% | 0.06% | 0.08% | 0.06% | 0.13% | -0.18% | 0.15% | |
| JPY | -0.04% | -0.04% | -0.03% | -0.08% | -0.07% | -0.29% | 0.05% | |
| NZD | 0.24% | 0.21% | 0.24% | 0.20% | 0.16% | 0.27% | 0.33% | |
| CHF | -0.10% | -0.13% | -0.11% | -0.14% | -0.18% | -0.07% | -0.35% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The economic calendar will not offer any high-impact data releases on Wednesday. Investors could pay close attention to the risk perception in the second half of the day but US stock index futures trade mixed in the European session. A bearish opening in Wall Street could help the USD edge higher and limit EUR/USD's upside.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart is moving sideways slightly above 50, reflecting a lack of directional momentum. On the upside, 1.0940 (mid-point of the ascending regression channel) aligns as first resistance before 1.0960 (end-point of the latest uptrend) and 1.0990 - 1.1000 (upper limit of the ascending channel, psychological level).
Strong support is located at 1.0900 (Fibonacci 23.6% retracement of the latest uptrend, lower limit of the ascending channel) before 1.0860 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement).
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.
