EUR/USD poised for a bullish breakout?
- EUR/USD rose on Tuesday, but still capped by recent congestion.
- Market sentiment was knocked off-balance by US consumer sentiment figures.
- Investors are still holding on for key US inflation figures, and another Trump pivot.
The EUR/USD pair saw a rally on Tuesday, increasing by half a percent and surpassing 1.0500 as Fiber confronts a significant technical hurdle for the eighth consecutive day. US consumer sentiment fell in February, intensifying concerns about an economic slowdown. Additionally, President Donald Trump has reiterated his plans to enforce hefty import taxes on American citizens, which serve as a trade war threat to the US's closest trade partners.
Forex Today: Concerns over the US economy are picking up pace
Despite the decline in consumer sentiment, primarily influenced by concerns over Trump’s tariff policies, the Cable showed resilience on Tuesday. Even with Trump’s ongoing trade war maneuvers, the market remains optimistic that he might find a last-minute excuse to defer his tariff threats.
Wednesday presents a sparse economic data schedule for both the US and EU, but the focus is shifting toward Thursday's expected release of US Gross Domestic Product (GDP) figures. The week will conclude with Friday’s update on US Personal Consumption Expenditure (PCE) inflation, a crucial report that investors believe will indicate whether the recent spike in headline Consumer Price Index (CPI) inflation will affect core inflation figures.
EUR/USD price forecast
EUR/USD is holding above the 50-day Exponential Moving Average (EMA) near 1.0440, but only just. Bidding momentum remains limited and has yet to reclaim the 1.0550 level, though the pair is holding well above mid-January’s swing low into the 1.0200 handle.
Even if bidders successfully wrestle Fiber price action back above 1.0550, the 200-day EMA is descending below 1.0650 and represents a hard technical barrier to an extended bull run.
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.
