EUR/USD Price Forecast: Reflects volatility contraction around 1.1750
- EUR/USD trades flat around 1.1750 amid uncertainty surrounding Iran’s response to the US proposal.
- Market sentiment remains risk-on amid optimism on the US-Iran deal.
- Investors await ECB Lagarde’s speech and the US NFP data for April.
The EUR/USD pair trades in a tight range around 1.1750 during the early European trading session on Thursday. The major currency pair consolidates as investors await Iran’s response to the United States (US) one-page peace plan, which restricts Tehran from uranium enrichment and the reopening of the Strait of Hormuz for all.
Global markets remain broadly risk-on as reports from Axios have shown that both the US and Iran are close to reaching a deal soon. S&P 500 futures are almost flat in the European trade, but gained almost 1.5% on Wednesday.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades with caution near 98.00.
Going forward, investors will focus on European Central Bank (ECB) President Christine Lagarde’s speech and the US Nonfarm Payroll (NFP) data for April, which are scheduled for Friday. Investors will pay close attention to both events to get fresh cues on the ECB and Federal Reserve’s (Fed) monetary policy outlook.
EUR/USD technical analysis
EUR/USD consolidates around 1.1750 as of writing. The pair has been close to the 20-period Exponential Moving Average (EMA) for almost a month, which is at 1.1708, reflecting a sideways trend.
The Relative Strength Index (RSI) stays inside the 40.00-60.00 zone, indicating indecisiveness among investors.
On the downside, initial support is located at the 20-day EMA near 1.1708, and a daily close below this level would hint at a loss of immediate bullish control and open the door to a deeper pullback towards the April 1 high of 1.1627. On the topside, the pair could approach the April 17 high around 1.1850 if it manages to break above the May 6 high of 1.1797.
(The technical analysis of this story was written with the help of an AI tool.)
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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