EUR/USD Price Forecast: Moves back above mid-1.1300s, 200-period SMA on H4 holds the key

EUR/USD regains positive traction on Monday amid the emergence of fresh USD selling.
Last week’s breakdown below the 100-period SMA on the H4 warrants caution for bulls.
Bears might now wait for weakness below the 1.1265 region before placing fresh bets.

Haresh Menghani FXStreet

The EUR/USD pair attracts some dip-buyers at the start of a new week and climbs back closer to mid-1.1300s during the Asian session amid a broadly weaker US Dollar (USD). The mixed technical setup, however, warrants some caution before positioning for any meaningful recovery from a three-week low, around the 1.1265 region touched last Thursday.

Last week's breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart – for the first time since early April – was seen as a key trigger for bearish traders. Oscillators on the daily chart are holding in bullish territory and have again started gaining positive traction on hourly charts. Hence, some follow-through buying is needed to confirm that the EUR/USD pair's recent corrective pullback from the 1.1575 area, or the highest level since November 2021 touched last week, has run its course.

In the meantime, the aforementioned support breakpoint, currently pegged near the 1.1375 area, might now act as an immediate hurdle ahead of the 1.1400 round figure. A sustained strength beyond the latter should allow the EUR/USD pair to surpass the 1.1425-1.1430 intermediate barrier and aim toward reclaiming the 1.1500 psychological mark. The momentum could extend further towards challenging the multi-year peak, around the 1.1575 region touched on April 2021 en route to the 1.0600 mark.

On the flip side, acceptance below the 1.1300 mark, leading to a subsequent break through the 1.1270-1.1265 region, or the multi-week low touched last Thursday, will reaffirm the negative bias. The EUR/USD pair might then accelerate the fall towards the 1.1200 round figure en route to the 1.1160-1.1155 area. The next relevant support is pegged near the 200-period SMA on the 4-hour chart, around the 1.1125 zone, which if broken decisively should pave the way for a further near-term depreciating move.

EUR/USD 4-hour 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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