- EUR/USD rose to a fresh seven-month high on Wednesday before falling back.
- EU GDP growth landed exactly where markets expected, and US CPI inflation cooled.
- US Retail Sales figures still in the barrel for Thursday.
EUR/USD caught a brief rally into a fresh seven-month peak bid before easing back toward the 1.1000 handle on Wednesday. Fiber caught a run over 1.1000 and into the 1.1050 level after pan-EU Gross Domestic Product (GDP) growth figure printed exactly as expected. Meanwhile, EU Industrial Production remains crimped and US Consumer Price Index (CPI) inflation figures met forecasts but still disappointed markets.
Forex Today: Soft or hard landing? Upcoming US data will have a say
Coming up on Thursday, US Retail Sales in July are expected to rebound to 0.3% after the previous month’s 0.0% flat hold. A fresh print of the University of Michigan’s Consumer Sentiment Index for August is also on the cards for later in the week, forecast to improve to 66.9 from 66.4.
Headline US CPI inflation printed at 2.9% YoY in July, slightly below the forecast hold at 3.0%, with core CPI inflation ticking down to 3.2% on an annualized basis from the previous 3.0% as markets had expected. Monthly CPI figures, both headline and core, rose 0.2% MoM in July, but even this figure was a round-up print from the data rates of 0.15% and 0.17% for headline and core CPI, respectively.
Despite easing consumer-level inflation figures, investors had been hoping for prints further below forecasts after this week’s US Producer Price Index (PPI) inflation showed steeper-than-expected drops in producer-level price pressures. However, easing price pressures don’t appear to be passing onto consumers on a one-to-one basis. According to the CME’s FedWatch Tool, rate markets are now pricing in only 40% odds of a double-cut from the Federal Reserve (Fed) on September 18, down from 50% earlier this week and 70% the week previous.
EUR/USD price forecast
EUR/USD chalked in a third straight gainer on Wednesday, mounting back over the 1.1000 handle and extending a near-term bullish tilt into a fresh seven-month peak near 1.1050. Bullish EUR/USD moves are threatening to run out of gas as the pair overextended too quickly from a technical rejection off of the 200-day Exponential Moving Average (EMA) at 1.0829.
EUR/USD daily chart
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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