EUR/USD Price Analysis: Holds below 1.0850, further downside cannot be ruled out
|- EUR/USD trades flat near 1.0840 in Thursday’s European session.
- The pair keeps its negative outlook unchanged below the 100-period EMA on 4-hour chart, with a bearish RSI indicator.
- The initial support level is located at 1.0820; the first upside target to watch is 1.0851.
The EUR/USD pair trades on a flat note around 1.0840 despite the decline of the Greenback during the early European session on Thursday. Traders prefer to wait on the sidelines ahead of the release of US key economic data. The preliminary US Gross Domestic Product (GDP) for the second quarter (Q2) is due later on Thursday, which is estimated to grow at an annualized rate of 2.0%, which is higher than the previous quarter of 1.4%.
Technically, EUR/USD maintains the bearish outlook unchanged on the 4-hour chart as the major pair holds below the key 100-period Exponential Moving Average (EMA). Additionally, the Relative Strength Index (RSI) stands in the bearish zone below the 50-midline, indicating that the path of least resistance level is to the downside.
The initial support level for the major pair is located at 1.0820, the lower limit of the Bollinger Band. A breach of this level could see a drop to the 1.0800 psychological level. Any follow-through selling below this level will pave the way to 1.0736, a low of July 3.
On the bright side, the first upside barrier will emerge at 1.0851, the 100-period EMA. The crucial resistance level is seen at the 1.0895-1.0905 zone, representing the confluence of the upper boundary of the Bollinger Band and a high of July 23. A decisive break above this level could see a rally to 1.0927, a high of July 17.
EUR/USD 4-hour chart
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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