EUR/USD Forecast: Improving risk mood could help Euro stretch higher
- EUR/USD extends its sideways grind below 1.1200 early Tuesday.
- US stock index futures trade modestly higher in the European session.
- CB Consumer Confidence Index data from the US will be looked upon for fresh impetus.
EUR/USD continues to move up and down in a narrow band above 1.1150 after posting small losses on Monday. In the absence of high-tier data releases, the improving risk mood could make it difficult for the US Dollar (USD) to extend its rebound and help the pair hold its ground.
Euro PRICE Last 7 days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.78% | -1.73% | -1.02% | -1.20% | -0.73% | -2.02% | -1.76% | |
| EUR | 0.78% | -0.96% | -0.24% | -0.41% | 0.07% | -0.94% | -1.00% | |
| GBP | 1.73% | 0.96% | 0.75% | 0.56% | 1.05% | 0.00% | -0.04% | |
| JPY | 1.02% | 0.24% | -0.75% | -0.17% | 0.29% | -0.73% | -0.78% | |
| CAD | 1.20% | 0.41% | -0.56% | 0.17% | 0.47% | -0.53% | -0.60% | |
| AUD | 0.73% | -0.07% | -1.05% | -0.29% | -0.47% | -1.01% | -1.07% | |
| NZD | 2.02% | 0.94% | -0.01% | 0.73% | 0.53% | 1.01% | -0.07% | |
| CHF | 1.76% | 1.00% | 0.04% | 0.78% | 0.60% | 1.07% | 0.07% |
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).
After the data from the US showed on Monday that Durable Goods Orders increased by 9.9% in July, the USD gathered strength and caused EUR/USD to edge lower. Later in the day, dovish comments from Federal Reserve (Fed) Bank of San Francisco Mary Daly limited the USD's gains.
"The time to adjust policy is upon us," Daly said and noted that it's hard to think of anything that could derail a rate cut in September.
The Conference Board's Consumer Confidence Index will be the only noteworthy data featured in the US economic calendar later in the day. A significant improvement in consumer sentiment could support the USD with the immediate reaction but investors are unlikely to take large positions based on this data alone.
In the meantime, US stock index futures gain between 0.1% and 0.25% in the European morning on Tuesday. A bullish opening in Wall Street could support EUR/USD in the second half of the day.
EUR/USD Technical Analysis
The near-term technical outlook suggests that the bullish stance remains unchanged, with the Relative Strength Index (RSI) indicator on the 4-hour chart holding comfortably above 60 after correcting from overbought levels. Additionally, EUR/USD stays afloat above the 20-period Simple Moving Average (SMA) while trading within the ascending regression channel coming from early August.
On the upside, 1.1200 (static level, psychological level) aligns as first resistance before 1.1240 (upper limit of the ascending channel) and 1.1260 (static level from July 2023).
Supports for EUR/USD could be seen at 1.1160-1.1150 (mid-point of the ascending channel, 20-period SMA), 1.1100 (lower limit of the ascending channel, 50-period SMA) and 1.1060 (static level).
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.
