EUR/USD Forecast: Sellers could retain control in case 1.1100 resistance holds
- EUR/USD trades in a narrow channel below 1.1100 on Friday.
- The pair could extend its losses if it breaks below 1.1050-1.1040 support area.
- US July PCE inflation will be watched closely by market participants.
Following a two-day decline, EUR/USD stays relatively quiet and fluctuates in a narrow band below 1.1100 in the European morning. The technical picture suggests that the bearish bias remains unchanged as investors' attention turns to key inflation figures.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.91% | 0.14% | 0.43% | -0.28% | -0.23% | -0.67% | -0.07% | |
| EUR | -0.91% | -0.81% | -0.47% | -1.17% | -1.22% | -1.56% | -0.95% | |
| GBP | -0.14% | 0.81% | 0.25% | -0.43% | -0.42% | -0.80% | -0.20% | |
| JPY | -0.43% | 0.47% | -0.25% | -0.69% | -0.58% | -0.87% | -0.40% | |
| CAD | 0.28% | 1.17% | 0.43% | 0.69% | 0.04% | -0.35% | 0.22% | |
| AUD | 0.23% | 1.22% | 0.42% | 0.58% | -0.04% | -0.35% | 0.24% | |
| NZD | 0.67% | 1.56% | 0.80% | 0.87% | 0.35% | 0.35% | 0.61% | |
| CHF | 0.07% | 0.95% | 0.20% | 0.40% | -0.22% | -0.24% | -0.61% |
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).
Upbeat macroeconomic data releases from the US helped the US Dollar (USD) build on Wednesday recovery gains and caused EUR/USD to drop to its weakest level in over a week. The US Bureau of Economic Analysis (BEA) announced that the annualized Gross Domestic Product (GDP) growth for the second quarter got revised higher to 3% from 2.8% in the previous estimate. Additionally, the number of first-time applications for unemployment benefits came in at 231,000 in the week ending August 24, down slightly from 233,000 in the previous week.
Eurostat will release the Eurozone Harmonized Index of Consumer Price (HICP) data for August. Soft inflation figures from Germany caused the Euro to come under modest bearish pressure on Thursday. Hence, investors are unlikely to react to the Eurozone figures.
In the second half of the day, the BEA will publish the Personal Consumption Expenditures (PCE) Price Index data for July, the Federal Reserve's (Fed) preferred gauge of inflation.
The core PCE Price Index, which excludes volatile food and energy prices, is forecast to rise 0.2% on a monthly basis. According to the CME FedWatch Tool, markets are currently seeing a 33% probability of a 50 basis points Fed rate cut in September. A stronger-than-forecast increase in the monthly core PCE Price Index could cause investors to refrain from pricing in a large rate cut and help the USD preserve its strength heading into the weekend. On the other hand, a reading of 0.1% or lower could help EUR/USD edge higher.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40 and the 20-period Simple Moving Average (SMA) remains below the 50-period SMA after completing a bearish cross. On the downside, 1.1050-1.1040 (100-period SMA, Fibonacci 38.2% retracement of the latest uptrend) aligns as key support area before 1.1000 (Fibonacci 50% retracement) and 1.0965 (200-period SMA).
Immediate resistance is located at 1.1100 (Fibonacci 23.6% retracement) before 1.1125-1.1135 (20-period SMA, 50 period SMA) and 1.1160 (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.
