- EUR/USD holds steady above 1.0700 after closing in the green on Wednesday.
- The Fed left the policy rate unchanged, introduced changes to QT strategy.
- The US Dollar struggles to find demand ahead of mid-tier data releases.
EUR/USD gathered bullish momentum in the late American session on Wednesday and closed the day in positive territory. The pair holds steady above 1.0700 in the European session on Thursday, while the technical outlook points to a bullish tilt.
The Federal Reserve (Fed) left the interest rate unchanged at 5.25%-5.5% following the April 30 - May 1 policy meeting, as widely expected. In its policy statement, the Fed announced they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1.
When asked about the possibility of policy tightening in the face of persistent inflation, Fed Chairman Jerome Powell said that it was unlikely that the next interest rate move would be a hike. Powell refrained from providing any clues regarding the timing of the policy pivot but said that it was likely that it will take longer than previously anticipated to gain the greater confidence in inflation moving toward the 2% target to lower the policy rate.
The US Dollar (USD) suffered large losses as the Fed event turned out to be not as hawkish as feared, with the USD Index falling over 0.6% on the day. Early Thursday, the USD Index holds steady above 105.50 and limits EUR/USD's upside.
Later in the day, the US Department of Labor will release the weekly Initial Jobless Claims data. The US economic docket will also feature the Unit Labor Costs data for the first quarter, which is expected to rise 3.2% following the 0.4% increase recorded in the previous quarter. A stronger-than-forecast print could help the USD erase some of its post-Fed losses, while a soft print could further weigh on the currency. Nevertheless, the market reaction could remain short-lived, with investors awaiting Friday's Nonfarm Payrolls data.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 50 and EUR/USD closed the last three 4-hour candles above the 100, 50 and 20-period Simple Moving Averages (SMA), reflecting the bullish tilt in the short-term outlook.
On the upside, key resistance area seems to have formed at 1.0750 - 1.0760 (Fibonacci 38.2% retracement of the latest downtrend, 200-period SMA). If EUR/USD stabilizes above that region, 1.0790 - 1.0800 (Fibonacci 50% retracement, static level) could be seen as next bullish target.
1.0700 (Fibonacci 23.6% retracement, 100-period SMA, 50-period SMA) aligns as immediate support before 1.0650 (static level) and 1.0600 (static level).
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD breaks below 1.1000 on stellar NFP
The buying bias in the Greenback gathers extra pace on Friday after the US economy created far more jobs than initially estimated in September, dragging EUR/USD to the area of new lows near 1.0950.
GBP/USD breaches 1.3100 after encouraging US Payrolls
The continuation of the uptrend in the US Dollar motivates GBP/USD to accelerates its losses and breaches 1.3100 the figure in the wake of the release of US NFP.
Gold rebounds from daily lows and flirts with $2,670
Following a post-NFP dip to the $2,640 region, Gold prices now embarks on an acceptable rebound and retest the area of $2,670 per ounce troy despite the marked advance in the US Dollar and rising US yields across the board.
US Payrolls surge in September, as 50bp rate cut ruled out
US payrolls data surprised on the upside in September, rising by 254k, smashing expectations of a 150k rise. The unemployment rate fell to 4.1% from 4.2%, average hourly earnings increased to a 4% YoY rate and there was a 72k upwards revision to the previous two months’ payrolls numbers.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.