- EUR/USD stays under modest bearish pressure and trades below 1.0900.
- The pair could face the next support level at 1.0870.
- Markets await the European Central Bank's policy announcements on Thursday.
EUR/USD stays under modest bearish pressure after posting small losses on Tuesday and trades at its lowest level in over two months below 1.0900 on Wednesday. Investors could move to the sidelines ahead of the European Central Bank's (ECB) monetary policy announcements on Thursday, with the economic calendar not offering any high-impact data releases on Wednesday.
The negative shift seen in risk sentiment helped the US Dollar (USD) stay resilient against its major rivals in the second half of the day on Tuesday, not allowing EUR/USD to stage a rebound.
Early Wednesday, US stock index futures trade mixed. In case safe-haven flows continue to dominate the market action after Wall Street's opening bell, EUR/USD is likely to stay on the back foot.
Nevertheless, investors could refrain from betting on an extended Euro selloff ahead of the ECB policy decisions. Markets expect the ECB to lower key rates by 25 basis points after the latest macroeconomic figures from the Eurozone showed further progress in disinflation, alongside a slowdown in activity-related data.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 30, suggesting that EUR/USD could stage a technical correction in the near term before extending its downtrend. On the downside, the Fibonacci 78.6% retracement of the latest uptrend forms immediate support at 1.0870. In case the pair falls below this level and starts using it as resistance, technical sellers could remain interested. In this scenario, 1.0800 (round level) and 1.0780 (static level, beginning point of the uptrend) could be seen as next support levels.
If EUR/USD reclaims 1.0900 (round level, static level) and stabilizes above it, sellers could move to the sidelines and pave the way for an extended recovery. In this case, next technical resistances could be spotted at 1.0950 (Fibonacci 61.8% retracement) and 1.1000 (Fibonacci 50% retracement).
Euro FAQs
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%).
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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