EUR/USD Price Forecast: Declines to near 1.1650, overbought signals curb upside bias
- EUR/USD weakens to around 1.1665 in Wednesday’s early European session.
- The positive outlook of the pair prevails, but further consolidation cannot be ruled out as RSI approaches overbought territory.
- The first upside barrier emerges at 1.1705; the critical contention level is located in the 1.1580-1.1575 region.
The EUR/USD pair trades in negative territory near 1.1665 during the early European trading hours on Wednesday, pressured by a rebound in the US Dollar (USD). Markets turn cautious ahead of the release of the key US July Personal Consumption Expenditures (PCE) Price Index report later on Wednesday.
Economists expect that inflationary pressures remain sticky due to ongoing energy risks from the Middle East conflict. The Core PCE, excluding food and energy, is projected to see a rise of 3.3% YoY in July. Any signs of hotter inflation in the US could bolster the case for a US interest rate hike in September and lift the Greenback against the Euro (EUR).
Markets are now pricing in nearly a 38.4% probability of a 25 basis points (bps) rise in September, down from 67% earlier this month, according to the CME FedWatch tool.
The attention will shift to the speech from Federal Reserve (Fed) Chairman Kevin Warsh at the Jackson Hole symposium on Friday. This event could offer some clues about the outlook for US interest rates.
Euro upside momentum builds as EUR/USD edges toward near-term resistance
Analysts at UOB Group note that EUR/USD has broken out of its recent tight range, with price action invalidating their prior expectation for consolidation. They recall that “two days ago, EUR traded between 1.1655 and 1.1687 and closed modestly lower by 0.15% at 1.1662,” and that yesterday they had indicated “the price action provides no fresh clues, and further range-trading appears likely, expected to be between 1.1650 and 1.1685.” However, UOB concedes that “our view of range-trading was wrong,” as the Euro “dipped to 1.1650, rose to 1.1679 before settling at 1.1674 (+0.10%).”
With this shift in price behaviour, UOB observes that “upward momentum is starting to build, albeit tentatively,” and now sees scope for the Euro “to test 1.1695” in the near term, while cautioning that “the next resistance at 1.1710 is unlikely to come under threat.” On the downside, they highlight that “support is at 1.1665, followed by 1.1655,” levels that help define the constructive bias as EUR/USD edges higher.
Technical Analysis: EUR/USD keeps a positive tone, with overbought RSI in focus
In the daily chart, EUR/USD maintains a constructive bullish bias as spot holds above both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. Price is pressing the upper half of the recent range, while the Relative Strength Index (14) at 67.27 approaches overbought territory, suggesting firm upside momentum but hinting that the advance is becoming stretched.
On the topside, immediate resistance is aligned with the 20-day Bollinger upper band near 1.1705, where buyers could start to face profit-taking. Any follow-through buying above this level could pave the way to the May 8 high of 1.1788, en route to the April 16 high of 1.1824.
On the downside, the key support level is seen in the 1.1580-1.1575 zone, representing Bollinger middle band and the 100-day SMA. A break below these levels would weaken the bullish structure and expose the lower Bollinger band support near 1.1460.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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