EUR/USD Forecast: Euro remains bearish despite latest rebound

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  • EUR/USD holds steady above 1.0750 after closing in the green on Tuesday.
  • EU inflation and high-tier US data could drive the pair’s action on Wednesday.
  • The technical outlook suggests that the bearish bias stays intact.

EUR/USD gained traction and closed in positive territory on Tuesday after touching its weakest level below 1.0730. The pair seems to have gone into a consolidation phase above 1.0750 early Wednesday ahead of key data releases.

Euro price this week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Swiss Franc.

USD   0.20% 0.52% 0.41% 0.33% 0.20% 0.30% 0.74%
EUR -0.20%   0.33% 0.22% 0.14% 0.00% 0.10% 0.54%
GBP -0.53% -0.33%   -0.12% -0.19% -0.34% -0.22% 0.21%
CAD -0.41% -0.21% 0.10%   -0.08% -0.22% -0.10% 0.33%
AUD -0.33% -0.14% 0.19% 0.07%   -0.14% -0.04% 0.41%
JPY -0.20% 0.03% 0.33% 0.23% 0.17%   0.11% 0.55%
NZD -0.31% -0.10% 0.24% 0.12% 0.03% -0.12%   0.38%
CHF -0.73% -0.50% -0.17% -0.31% -0.36% -0.51% -0.39%  

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).

The renewed US Dollar (USD) weakness helped EUR/USD stage a rebound during the American trading hours on Tuesday. Although there was a negative shift in risk sentiment, investors refrained from betting on an extended USD rally.

Eurostat will release the preliminary inflation data for March.

European Central Bank (ECB) policymakers made it clear that they intend to lower the policy rate in June. Unless there is a significant downside surprise that could revive expectations for an ECB rate cut in April, the market reaction could remain limited. Investors expect the Harmonized Index of Consumer Prices to rise 2.6% on a yearly basis in March, matching February’s increase.

Later in the day, the ADP Employment Change data from the US will be watched closely by market participants, who forecast an increase of 148K in March. A print at or below 100K could trigger a USD selloff with the immediate reaction.

The ISM Services PMI data will also be featured in the US economic docket. Earlier in the week, the USD outperformed its rivals after the ISM Manufacturing PMI came in better than expected and the Prices Paid Index of the survey rose sharply. Hence, a similar reaction could be seen if the ISM Services PMI beats analysts’ estimates.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart started to edge lower after reaching 50, suggesting that buyers remain hesitant. Additionally, EUR/USD stays within the descending regression channel coming from mid-March.

On the downside, 1.0760 (Fibonacci 78.6% retracement of the latest uptrend) aligns as immediate support before 1.0720 (static level) and 1.0700 (beginning point of the uptrend).

Strong resistance seems to have formed at 1.0800 (upper limit of the descending channel, Fibonacci 61.8% retracement) before 1.0830 (Fibonacci 50% retracement) and 1.0850 (100-period and 200-period Simple Moving Averages).

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.