EUR/USD backslides on thin Monday volumes
- EUR/USD fell to a fresh 30-week low on Monday.
- US markets were thinned by a holiday, but the Greenback still rose.
- Fiber traders will get a breather before key data drops in the latter half of the week.
EUR/USD slid to a fresh 30-week low on Monday, kicking off the first trading session of the week with a 0.6% decline. Fiber extended losses below the 1.0700 handle as Euro bulls evaporate as markets await key US Consumer Price Index (CPI) inflation and a fresh update to pan-European Gross Domestic Product figures, both of which are slated to publish during the back half of the trading week.
The Euro has only a mid-tier smattering of economic data on the economic calendar for the early half of the week, leaving Fiber traders to chew on the US’ upcoming CPI inflation print due on Wednesday. October’s headline US CPI is expected to accelerate to 2.6% YoY from the previous period’s 2.4%, with core CPI for the same period forecast to hold steady at 3.3% YoY. Thursday will follow up with US Producer Price Index (PPI) business-level inflation, which is also expected to tick higher to 2.9% YoY in October from 2.8%.
On the European side, hopeful Euro bulls will be looking for a hold (at best) in EU-wide GDP growth numbers slated for early Thursday. Quarterly EU GDP growth in the third quarter is forecast to hold steady at 0.4% QoQ, while annualized EU GDP growth is expected to hold steady at an unremarkable 0.9% YoY.
EUR/USD price forecast
The EUR/USD daily chart displays a strong bearish momentum, with the pair extending losses after a recent breakdown below the 200-day EMA at 1.0895. The price is now well below both the 50-day EMA at 1.0960 and the 200-day EMA, confirming the bearish trend in the short to medium term. This downward move signals that sellers are firmly in control, with the pair nearing the next support level around 1.0650. A sustained close below this support level could further accelerate the downside momentum.
The MACD indicator, situated below the chart, supports the bearish sentiment, as the MACD line is diverging from the signal line in the negative territory. The histogram has turned more negative, suggesting an increase in bearish momentum. However, it is worth noting that the MACD line remains relatively close to the signal line, indicating that momentum could still shift if buyers step in at key support levels. A bullish crossover on the MACD would be the first sign of a potential trend reversal, but as of now, such a signal remains absent.
In the near term, a break below the immediate support at 1.0650 could lead to further declines, potentially targeting the psychological level of 1.0600. Conversely, if EUR/USD finds buying interest around the current levels, it may retest the 1.0750-1.0800 resistance zone. However, with both the 50-day and 200-day EMAs trending lower, the path of least resistance appears to be to the downside. Traders will likely watch for any bullish signals to confirm a reversal, but the overall technical picture currently favors the bears.
EUR/USD daily chart
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.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
