EUR/USD stuck on familiar technical levels during midweek lull

EUR/USD remains hampered by 1.0400 key handle on Wednesday.
Overall market sentiment is keeping the Greenback underbid.
European Retail Sales due Thursday, US NFP coming Friday.

Joshua Gibson FXStreet

EUR/USD dragged its feet on Wednesday, finding some topside bidding action as a broad-market recovery in risk appetite keeps bids behind the US Dollar under pressure. The Euro is struggling to find its feet after snapping a six-day losing streak, and EUR/USD remains hobbled by the 1.0400 handle.

US ADP Employment Change figures showed stronger-than-expected results in January, with a net increase of 183K in payrolls, surpassing the anticipated drop to 150K from December’s revised figure of 176K. Although ADP job figures are an unreliable predictor of US Nonfarm Payrolls (NFP) expected at the end of the week, the increase is boosting investor confidence that the US economy remains on solid ground.

Pan-European Retail Sales figures from December are due early Thursday. Median market forecasts expect an upswing to 1.9% YoY compared to the previous period’s 1.2%. However, December’s MoM figure is expected to swing lower to -0.1% from 0.1%.

This week, the most important data release will be the US Nonfarm Payrolls (NFP) jobs report on Friday. Investors anticipate a decrease in January’s NFP figure to 170K from December’s 256K. Traders will also monitor revisions from prior months closely. Those expecting rate cuts have grown increasingly frustrated with the persistent strength of the US economy, as labor statistics often receive upward revisions afterward.

EUR/USD price forecast

EUR/USD kicked off the midweek market session with a bullish tilt, but tepid price action saw the pair flub the 1.0450 level with the 50-day Exponential Moving Average (EMA) weighing on intraday bids from 1.0445. Momentum is drying up ahead of key data prints, though Fiber has managed to recover from the early week’s plunge toward the 1.0200 handle.

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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