EUR/USD Forecast: Sellers hesitate as focus remains on Fed commentary
- EUR/USD clings to modest daily gains, trades above 1.1500 on Thursday.
- Several Fed policymakers will be delivering speeches later in the day.
- The technical outlook points to a loss of bearish momentum.
EUR/USD trades marginally higher on the day above 1.1500 in the European session on Thursday after posting small gains on Wednesday. The pair's technical outlook points to a loss of bearish momentum as investors await comments from Federal Reserve (Fed) officials.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.19% | 0.52% | -0.22% | 0.63% | 0.62% | 1.30% | 0.62% | |
| EUR | -0.19% | 0.32% | -0.35% | 0.43% | 0.41% | 1.11% | 0.42% | |
| GBP | -0.52% | -0.32% | -0.82% | 0.12% | 0.09% | 0.78% | 0.10% | |
| JPY | 0.22% | 0.35% | 0.82% | 0.81% | 0.82% | 1.51% | 0.96% | |
| CAD | -0.63% | -0.43% | -0.12% | -0.81% | -0.06% | 0.66% | -0.01% | |
| AUD | -0.62% | -0.41% | -0.09% | -0.82% | 0.06% | 0.69% | 0.00% | |
| NZD | -1.30% | -1.11% | -0.78% | -1.51% | -0.66% | -0.69% | -0.68% | |
| CHF | -0.62% | -0.42% | -0.10% | -0.96% | 0.00% | -0.00% | 0.68% |
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) benefited from upbeat macroeconomic data releases on Wednesday but lost its strength later in the American session as the bullish action seen in Wall Street's main indexes reflected a positive shift in risk mood.
The Automatic Data Processing (ADP) announced on Wednesday that employment in the private sector rose by 42,000 in October, surpassing the market expectation for an increase of 25,000. Other data from the US showed that the business activity in the service sector expanded at a health pace in October, with the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) arriving at 52.4.
The US economic calendar will not offer any high-impact data releases on Thursday. In the second half of the day, several Fed policymakers will be delivering speeches.
According to the CME FedWatch Tool, markets are currently pricing in about a 63% probability of a 25 basis points (bps) Fed rate cut in December.
In case policymakers hint that another rate cut might not be needed next month, citing upbeat data, the USD could regather its strength and make it difficult for EUR/USD to extend its recovery. On the other hand, EUR/USD could stretch higher if Fed officials leave the door open for further policy easing before the end of the year.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart recovered above 40, reflecting a loss of bearish momentum. Additionally, EUR/USD closed the last 4-hour candle above the 20-period Simple Moving Average (SMA).
On the upside, 1.1520 (mid-point of the descending channel) aligns as the immediate resistance level before 1.1550 (static level) and 1.1570 (50-period SMA). Looking south, support levels could be seen at 1.1500 (static level, round level), 1.1450 (static level) and 1.1430 (lower limit of the descending channel).
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.
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.
