EUR/USD Forecast: Euro could struggle to stretch higher on hawkish Fed commentary
- EUR/USD fluctuates above 1.0750 in the European morning on Monday.
- The USD could hold its ground in case Fed policymakers push back against September policy pivot.
- The near-term technical outlook points to a lack of bullish momentum.
EUR/USD fluctuates in a narrow channel above 1.0750 to start the new week. Comments from central bank officials could impact the pair's action in the near term. The Producer Price Index (PPI) and the Consumer Price Index (CPI) data from the US on Tuesday and Wednesday, respectively, could trigger the next big action in EUR/USD.
Euro PRICE Last 7 days
The table below shows the percentage change of Euro (EUR) against listed major currencies last 7 days. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.15% | -0.19% | -1.81% | -0.05% | -0.09% | -0.03% | -0.16% | |
| EUR | -0.15% | -0.25% | -1.83% | -0.13% | -0.03% | -0.11% | -0.22% | |
| GBP | 0.19% | 0.25% | -1.60% | 0.13% | 0.21% | 0.14% | 0.03% | |
| JPY | 1.81% | 1.83% | 1.60% | 1.74% | 1.71% | 1.79% | 1.64% | |
| CAD | 0.05% | 0.13% | -0.13% | -1.74% | -0.16% | 0.02% | -0.07% | |
| AUD | 0.09% | 0.03% | -0.21% | -1.71% | 0.16% | -0.09% | -0.14% | |
| NZD | 0.03% | 0.11% | -0.14% | -1.79% | -0.02% | 0.09% | -0.09% | |
| CHF | 0.16% | 0.22% | -0.03% | -1.64% | 0.07% | 0.14% | 0.09% |
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).
Ahead of the weekend, hawkish comments from Federal Reserve (Fed) policymakers helped the US Dollar (USD) erase some of the losses it suffered following the disappointing Jobless Claims data on Thursday.
Fed Board of Governors member Michelle W. Bowman said on Friday that she doesn't see rate cuts as warranted this year, adding that she would want to see a number of months of better inflation data. Meanwhile, Minneapolis Fed President Neel Kashkari reiterated his doubts on whether the policy was restrictive enough and noted that he can't rule out the possibility of another rate hike this year.
Later in the day, Fed Vice Chair of the Board of Governors Phillip Jefferson and Cleveland Fed President Loretta Mester will be delivering speeches. According to the CME FedWatch Tool, markets are pricing in a 40% probability that the Fed will leave the policy rate unchanged in September. If Fed officials push back against the expectations for a rate cut in September, the market positioning suggests that there is room for US Dollar (USD) gains.
EUR/USD Technical Analysis
EUR/USD faces key resistance at 1.0790-1.0800 (Fibonacci 50% retracement of the latest downtrend, psychological level). If the pair manages to stabilize above this region, 1.0830 (Fibonacci 61.8% retracement) and 1.0900 (Fibonacci 78.6% retracement) could be seen as next hurdles.
On the downside, first support is located at 1.0750 (Fibonacci 38.2% retracement, 200-period Simple Moving Average (SMA) on the 4-hour chart) before 1.0720 (100-period SMA) and 1.0700 (Fibonacci 23.6% retracement).
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.
