EUR/USD Price Forecast: Remains confined in a range around 1.1300 ahead of FOMC meeting
- EUR/USD struggles for a firm near-term direction as traders await the crucial FOMC meeting.
- The recent breakdown below the 100-period SMA on the 4-hour chart favors bearish traders.
- The mixed technical setup, however, warrants caution before positioning for deeper losses.
The EUR/USD pair reverses an Asian session tip to the 1.1280-1.1275 region on Tuesday and climbs a fresh daily high in the last hour, though it lacks strong follow-through buying. Spot prices remain confined in a multi-day-old trading range, close to the three-week low touched last Thursday, as traders opt to wait on the sidelines ahead of the crucial FOMC decision on Wednesday.
Heading into the key central bank event risk, Friday's upbeat US jobs data and the US ISM Services PMI released on Monday eased market concerns about a recession. This, in turn, helps limit the downside for the US Dollar (USD) and acts as a headwind for the EUR/USD pair. However, the heightened economic uncertainty led by US President Donald Trump's rapidly shifting stance on trade policies keeps the USD bulls on the defensive.
From a technical perspective, last week's breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart – for the first time since early April – was seen as a key trigger for bearish traders. However, oscillators on the said chart are yet to confirm a negative bias and are holding in bullish territory on the daily chart. This makes it prudent to wait for strong follow-through selling before positioning for any meaningful depreciating move.
In the meantime, the 100-period SMA on the 4-hour chart, currently pegged around the 1.1380 region, could act as an immediate hurdle ahead of the 1.1400 round figure. A sustained strength beyond the latter should allow the EUR/USD pair to surpass the 1.1425-1.1430 intermediate barrier and aim toward reclaiming the 1.1500 psychological mark. The momentum could extend further towards the multi-year peak, around the 1.1575 region touched in April.
On the flip side, the 1.1265 region, or a three-week low touched last Thursday, might offer immediate support and should act as a key pivotal point. A convincing break below should pave the way for an extension of the EUR/USD pair's corrective slide from the 1.1575 area, or the highest level since November 2021 touched last week. Spot prices might then weaken to the 1.1200 round figure before dropping to the 1.1140 area, or the 200-period SMA on the 4-hour chart.
EUR/USD 4-hour 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.
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