EUR/USD Forecast: Euro turns fragile after retreating below key level
- EUR/USD trades in a tight range near 1.0500 early Tuesday.
- Political uncertainty in France, Fed-ECB policy divergence limit the pair's upside.
- Technical sellers could remain interested while 1.0520 holds as resistance.
EUR/USD started the week on a bearish noted and dropped below 1.0500 on Monday. The pair holds its ground early Tuesday but shows no signs of a steady recovery.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.67% | 0.54% | 0.10% | 0.34% | 0.45% | 0.59% | 0.74% | |
| EUR | -0.67% | -0.17% | -0.55% | -0.32% | -0.13% | -0.07% | 0.09% | |
| GBP | -0.54% | 0.17% | -0.42% | -0.18% | 0.05% | 0.09% | 0.23% | |
| JPY | -0.10% | 0.55% | 0.42% | 0.24% | 0.37% | 0.49% | 0.56% | |
| CAD | -0.34% | 0.32% | 0.18% | -0.24% | 0.27% | 0.24% | 0.38% | |
| AUD | -0.45% | 0.13% | -0.05% | -0.37% | -0.27% | 0.05% | 0.18% | |
| NZD | -0.59% | 0.07% | -0.09% | -0.49% | -0.24% | -0.05% | 0.16% | |
| CHF | -0.74% | -0.09% | -0.23% | -0.56% | -0.38% | -0.18% | -0.16% |
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 risk-averse market atmosphere helped the US Dollar (USD) gather strength against its rivals and weighed on EUR/USD on Monday. Additionally, political woes in France further weighed on the Euro. "The French government is all but certain to collapse later this week after far-right and left-wing parties submitted no-confidence motions on Monday against Prime Minister Michel Barnier," Reuters reported.
Meanwhile, the potential monetary policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB) doesn't allow the pair to gain traction.
Atlanta Fed President Bostic said late Monday that he is undecided on whether a rate cut is needed in December. On a similar note, "one could argue a case for skipping a rate cut in December, will be watching data closely to decide," NY Fed President John Williams noted. On the flip side, ECB policymaker Martins Kazaks argued that the inflation problem will soon end and added that rate cuts must continue.
In the second half of the day, the US Bureau of Labor Statistics will publish JOLTS Job Openings data for October. A significant negative surprise, with a reading at or below 7 million, could hurt the USD with the immediate reaction and help EUR/USD edge higher.
EUR/USD Technical Analysis
EUR/USD dropped below 1.0520, where the Fibonacci 23.6% retracement of the latest downtrend is located. While this level holds as resistance, technical sellers could remain interested. On the downside, supports could be seen at 1.0440 (static level) and 1.0400 (end-point of the downtrend, static level).
In case EUR/USD rises above 1.0520, next hurdle is located at 1.0545 (100-period Simple Moving Average (SMA) on the 4-hour chart) ahead of 1.0600 (Fibonacci 38.2% 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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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.
