EUR/USD Forecast: Euro shows no signs of life despite oversold conditions

Source Fxstreet
Apr 16, 2024 07:52
  • EUR/USD trades within a touching distance of 1.0600 early Tuesday.
  • The pair remains technically oversold in the near term.
  • Fed Chairman Powell will speak on economic outlook and policymaking later in the day.

Following a short-lasting recovery attempt during the European trading hours, EUR/USD lost its traction and closed the first trading day of the week in negative territory. The pair struggles to stage a rebound and trades within a few pips of 1.0600 early Tuesday.

Easing geopolitical tensions limited the US Dollar's (USD) upside in the first half of the day on Monday and helped EUR/USD edge higher. After the data from the US showed that Retail Sales increased at a stronger pace than expected in March, however, US Treasury bond yields shot higher and allowed the USD to regather its strength.

Meanwhile, Federal Reserve (Fed) Bank of San Francisco President Mary Daly cautioned against acting urgently, saying that they need to be confident that inflation is on its way to the 2% target before taking a policy action.

Euro price this week

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

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.31% 0.19% 0.26% 0.86% 0.73% 0.93% -0.07%
EUR -0.31%   -0.12% -0.04% 0.56% 0.42% 0.63% -0.38%
GBP -0.20% 0.11%   0.07% 0.66% 0.53% 0.74% -0.27%
CAD -0.28% 0.03% -0.09%   0.59% 0.45% 0.66% -0.35%
AUD -0.87% -0.56% -0.68% -0.59%   -0.13% 0.07% -0.93%
JPY -0.71% -0.41% -0.51% -0.46% 0.14%   0.23% -0.80%
NZD -0.94% -0.63% -0.77% -0.67% -0.07% -0.21%   -1.01%
CHF 0.07% 0.38% 0.27% 0.34% 0.93% 0.80% 1.01%  

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).

 

Housing Starts and Building Permits data for March will be featured in the US economic docket on Tuesday. Later in the American session, Fed Chairman Jerome Powell will speak alongside Bank of Canada Governor Tiff Macklem on the economic outlook and monetary policymaking.

The CME FedWatch Tool shows that markets see a nearly 80% probability that the Fed will hold the policy rate unchanged in June. This positioning suggests that the USD has some more room on the upside in case Powell adopts a hawkish tone.

In the meantime, US stock index futures trade in negative territory. In case Wall Street's main indexes continue to push lower following Monday's sharp decline, the USD could benefit from safe-haven flows and make it difficult for EUR/USD to find a foothold.

EUR/USD Technical Analysis

EUR/USD edged slightly higher after testing 1.0600. The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 20, suggesting that the pair is still technically oversold.

On the upside, 1.0660 (static level) aligns as first resistance before 1.0700 (psychological level, static level). In case the pair drops below 1.0600 and confirms this level as resistance, 1.0550 (static level from October) could be seen as next support before 1.0500 (psychological level, static level).

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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