EUR/USD Forecast: Technicals turn bearish following Thursday slide
- EUR/USD trades below 1.0900 after posting large losses on Thursday.
- Near-term technical outlook points to a bearish tilt.
- The pair needs to reclaim 1.0900 to discourage sellers.
EUR/USD came under heavy bearish pressure and closed below 1.0900 on Thursday. The pair stays relatively calm but struggles to gather recovery momentum early Friday.
After the data from the US showed that producer inflation, as measured by the change in the Producer Price Index (PPI), climbed to 1.6% on a yearly basis in February from 1% in January, the benchmark 10-year US Treasury bond yield surged higher and provided a boost to the US Dollar (USD). According to the CME FedWatch Tool, the probability of the Federal Reserve leaving the policy rate unchanged at June meeting climbed to 40% after the PPI data, compared to nearly 25% earlier in the week.
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 | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.58% | 0.94% | 0.44% | 0.98% | 1.23% | 1.32% | 0.83% | |
| EUR | -0.58% | 0.38% | -0.14% | 0.40% | 0.67% | 0.75% | 0.26% | |
| GBP | -0.95% | -0.37% | -0.50% | 0.04% | 0.31% | 0.39% | -0.09% | |
| CAD | -0.43% | 0.13% | 0.49% | 0.54% | 0.78% | 0.88% | 0.39% | |
| AUD | -0.99% | -0.41% | -0.05% | -0.54% | 0.25% | 0.34% | -0.14% | |
| JPY | -1.23% | -0.66% | -0.05% | -0.80% | -0.24% | 0.09% | -0.40% | |
| NZD | -1.33% | -0.75% | -0.39% | -0.90% | -0.34% | -0.09% | -0.49% | |
| CHF | -0.84% | -0.26% | 0.10% | -0.39% | 0.12% | 0.38% | 0.49% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Later in the day, the US economic docket will feature Import Price Index and Export Price Index figures for February. Although these data usually don't trigger a noticeable market reaction, a positive reading in the Import Price Index, which was down 1.3% on a yearly basis in January, could help the USD preserve its strength heading into the weekend.
The University of Michigan (UoM) will release the preliminary Consumer Sentiment Survey for March as well on Friday. The Consumer Confidence Index is forecast to remain unchanged at 76.9. Investors will also pay close attention to the one-year and five-year inflation expectation components of the survey.
EUR/USD Technical Analysis
EUR/USD broke below the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 40, highlighting a buildup of bearish pressure.
On the downside, a strong support area seems to have formed at 1.0870-1.0860, where the 100-period Simple Moving Average (SMA) meets the Fibonacci 38.2% retracement level of the latest uptrend. If the pair falls below that level and starts using it as resistance, 1.0830 (200-period SMA, Fibonacci 50% retracement) could be seen as the next bearish target before 1.0800 (Fibonacci 61.8% retracement).
1.0900 (lower limit of the ascending channel) aligns as key resistance. In case the pair manages to stabilize above that level, sellers could be discouraged. In this scenario, 1.0920 (20-period SMA, 50-period SMA) could act as interim resistance before 1.0950 (mid-point 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.
