EUR/USD Forecast: Euro could extend correction in case 1.1100 support fails
- EUR/USD edges lower after closing marginally higher on Tuesday.
- 1.1100 aligns as the next important support for the pair.
- The economic calendar will not offer high-tier data releases that could impact EUR/USD's action.
After posting small daily gains on Tuesday, EUR/USD stays on the back foot and trades in negative territory below 1.1150 in the European session on Wednesday.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | -0.06% | 0.07% | -0.36% | 0.02% | -0.29% | -0.50% | |
| EUR | -0.44% | -0.55% | -0.37% | -0.78% | -0.49% | -0.71% | -0.91% | |
| GBP | 0.06% | 0.55% | 0.08% | -0.30% | 0.04% | -0.23% | -0.43% | |
| JPY | -0.07% | 0.37% | -0.08% | -0.41% | 0.03% | -0.14% | -0.48% | |
| CAD | 0.36% | 0.78% | 0.30% | 0.41% | 0.37% | 0.11% | -0.15% | |
| AUD | -0.02% | 0.49% | -0.04% | -0.03% | -0.37% | -0.22% | -0.42% | |
| NZD | 0.29% | 0.71% | 0.23% | 0.14% | -0.11% | 0.22% | -0.21% | |
| CHF | 0.50% | 0.91% | 0.43% | 0.48% | 0.15% | 0.42% | 0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The positive shift seen in risk mood made it difficult for the US Dollar (USD) to find demand and helped EUR/USD edge higher in the American session on Tuesday. Early Wednesday, US stock index futures trade virtually unchanged on the day, pointing to a neutral risk mood midweek.
The economic calendar will not feature any high-tier data releases that could drive EUR/USD's action on Wednesday. Hence, investors could react to changes in risk perception and pay close attention to the technical developments in the pair.
On Thursday, August Consumer Price Index (CPI) data for August from Germany and the US Bureau of Economic Analysis' revision to the second-quarter Gross Domestic Product's (GDP) growth will be watched closely by investors. Ahead of the weekend, the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's preferred gauge of inflation, could trigger the next big action in the pair.
EUR/USD Technical Analysis
EUR/USD dropped into the lower half of the ascending regression channel coming from early August and the Relative Strength Index (RSI) indicator retreated below 50, highlighting a loss of bullish momentum.
1.1110-1.1100 (lower limit of the ascending channel, Fibonacci 23.6% retracement of the latest uptrend) aligns as key support area. In case EUR/USD fails to stabilize above this region, technical sellers could take action. In this scenario, 1.1040 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement) could be seen as the next bearish target.
On the upside, 1.1190-1.1200 (mid-point of the ascending channel, static level) could be seen as first resistance before 1.1250 (upper limit of the ascending channel).
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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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
