EUR/USD Price Forecast: Ascending channel favors bulls ahead of the key central bank event risk

EUR/USD kicks off the new week on a softer note amid a modest USD uptick.
The lack of follow-through selling warrants some caution for bearish traders.
Investors also seem reluctant ahead of the key FOMC decision on Wednesday.

Haresh Menghani FXStreet

The EUR/USD pair trades with a mild negative bias below mid-1.1500s through the Asian session on Monday amid a modest US Dollar (USD) uptick, though it lacks bearish conviction. Spot prices remain close to the highest level since October 2021, around the 1.1630 area touched last week as traders now look to the crucial FOMC policy decision on Wednesday before placing fresh directional bets.

Heading into the key central bank event risk, expectations that the Federal Reserve (Fed) will resume its rate-cutting cycle in September might hold back the USD bulls from placing aggressive bets. Moreover, the European Central Bank's (ECB) hawkish signal, that the end of the rate-cutting cycle is nearing, should act as a tailwind for the shared currency and continue supporting the EUR/USD pair.

From a technical perspective, the recent move-up witnessed over the past month or so, along an ascending channel, points to a well-established short-term uptrend and favors bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and suggest that the path of the least hurdle for the EUR/USD pair is to the upside. Hence, any corrective slide could be seen as a buying opportunity.

In the meantime, the 1.1500 psychological mark could protect the immediate downside ahead of the 1.1450-1.1445 horizontal resistance breakpoint. This is closely followed by the trend-channel support, around the 1.1435-1.1430 area, which should act as a pivotal point. A convincing break below the latter could drag the EUR/USD pair further below the 1.1400 mark, towards the 1.1370-1.1365 support zone.

On the flip side, the 1.1570 area, followed by the 1.1600 round figure and the 1.1630 region, or the multi-year peak touched last Thursday, now seems to act as immediate hurdles. Some follow-through buying beyond the 1.1655-1.1660 zone, or the top end of the short-term ascending channel, will be seen as a fresh trigger for bullish traders and allow the EUR/USD pair to aim towards conquering the 1.1700 mark.

EUR/USD daily chart

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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