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Euro could correct lower before extending uptrend

By Published On: May 16, 202410.5 min readViews: 870 Comments on Euro could correct lower before extending uptrend

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  • EUR/USD came within a touching distance of 1.0900 early Thursday.
  • The pair’s near-term technical outlook points to overbought conditions.
  • Mid-tier US data and Fedspeak will be scrutinized by investors later in the day.

EUR/USD gathered bullish momentum and climbed to its highest level in nearly two months above 1.0890. The pair stays in a consolidation phase early Thursday but holds comfortably above 1.0850 as market focus shifts to mid-tier data releases from the US and Fedspeak.

The broad-based selling pressure surrounding the US Dollar (USD) fueled EUR/USD’s rally midweek. The probability of the Federal Reserve (Fed) leaving the policy rate unchanged declined toward 25% from 35% after the April inflation report, per CME FedWatch Tool.

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 US Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.95% -1.19% -0.94% -0.35% -1.11% -1.42% -0.56%
EUR 0.95%   -0.29% 0.00% 0.59% -0.20% -0.49% 0.37%
GBP 1.19% 0.29%   0.22% 0.88% 0.09% -0.21% 0.66%
JPY 0.94% 0.00% -0.22%   0.57% -0.15% -0.54% 0.42%
CAD 0.35% -0.59% -0.88% -0.57%   -0.75% -1.09% -0.30%
AUD 1.11% 0.20% -0.09% 0.15% 0.75%   -0.40% 0.58%
NZD 1.42% 0.49% 0.21% 0.54% 1.09% 0.40%   0.87%
CHF 0.56% -0.37% -0.66% -0.42% 0.30% -0.58% -0.87%  

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 US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

The US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April. The annual core CPI increased 3.6% in the same period. On a monthly basis, the CPI and the core CPI both rose 0.3%. In the meantime, the US Census Bureau reported that Retail Sales remained unchanged in April, missing the market expectation for an increase of 0.4%.

Later in the day, the weekly Initial Jobless Claims data will be featured in the US economic docket, alongside April Industrial Production, Building Permits and Housing Starts figures. Last week, the unexpected jump seen in the number of first-time applications for unemployment benefits triggered a USD selloff. In case weekly Jobless Claims arrive at or above 230K for the second consecutive week, the USD could continue to weaken against its rivals. On the other hand, a sharp drop toward 210K could help the USD find a foothold and limit EUR/USD’s upside.

Investors will also pay close attention to comments from Fed policymakers. Several Fed officials, including Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker, are scheduled to speak during the American trading hours. In case policymakers dismiss the modest improvement seen in inflation data and reiterate that they will look for several more good inflation readings before cutting rates, investors could reassess the probability of a Fed rate cut in September and open the door for a rebound in the USD.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 and EUR/USD trades above the upper limit of the ascending regression trend channel coming from mid-April, highlighting overbought conditions.

If EUR/USD returns with the ascending channel by flipping 1.0870 (upper limit of the channel) into resistance, 1.0820 (100-day Simple Moving Average (SMA), mid-point of the channel) could act as strong support before 1.0790-1.0800 (50-day SMA, 200-day SMA).

On the upside, 1.0900 (static level, psychological level) aligns as first resistance before 1.0940 (static level) and 1.0980 (March 8 high).

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.

 

  • EUR/USD came within a touching distance of 1.0900 early Thursday.
  • The pair’s near-term technical outlook points to overbought conditions.
  • Mid-tier US data and Fedspeak will be scrutinized by investors later in the day.

EUR/USD gathered bullish momentum and climbed to its highest level in nearly two months above 1.0890. The pair stays in a consolidation phase early Thursday but holds comfortably above 1.0850 as market focus shifts to mid-tier data releases from the US and Fedspeak.

The broad-based selling pressure surrounding the US Dollar (USD) fueled EUR/USD’s rally midweek. The probability of the Federal Reserve (Fed) leaving the policy rate unchanged declined toward 25% from 35% after the April inflation report, per CME FedWatch Tool.

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 US Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.95% -1.19% -0.94% -0.35% -1.11% -1.42% -0.56%
EUR 0.95%   -0.29% 0.00% 0.59% -0.20% -0.49% 0.37%
GBP 1.19% 0.29%   0.22% 0.88% 0.09% -0.21% 0.66%
JPY 0.94% 0.00% -0.22%   0.57% -0.15% -0.54% 0.42%
CAD 0.35% -0.59% -0.88% -0.57%   -0.75% -1.09% -0.30%
AUD 1.11% 0.20% -0.09% 0.15% 0.75%   -0.40% 0.58%
NZD 1.42% 0.49% 0.21% 0.54% 1.09% 0.40%   0.87%
CHF 0.56% -0.37% -0.66% -0.42% 0.30% -0.58% -0.87%  

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 US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

The US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April. The annual core CPI increased 3.6% in the same period. On a monthly basis, the CPI and the core CPI both rose 0.3%. In the meantime, the US Census Bureau reported that Retail Sales remained unchanged in April, missing the market expectation for an increase of 0.4%.

Later in the day, the weekly Initial Jobless Claims data will be featured in the US economic docket, alongside April Industrial Production, Building Permits and Housing Starts figures. Last week, the unexpected jump seen in the number of first-time applications for unemployment benefits triggered a USD selloff. In case weekly Jobless Claims arrive at or above 230K for the second consecutive week, the USD could continue to weaken against its rivals. On the other hand, a sharp drop toward 210K could help the USD find a foothold and limit EUR/USD’s upside.

Investors will also pay close attention to comments from Fed policymakers. Several Fed officials, including Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker, are scheduled to speak during the American trading hours. In case policymakers dismiss the modest improvement seen in inflation data and reiterate that they will look for several more good inflation readings before cutting rates, investors could reassess the probability of a Fed rate cut in September and open the door for a rebound in the USD.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70 and EUR/USD trades above the upper limit of the ascending regression trend channel coming from mid-April, highlighting overbought conditions.

If EUR/USD returns with the ascending channel by flipping 1.0870 (upper limit of the channel) into resistance, 1.0820 (100-day Simple Moving Average (SMA), mid-point of the channel) could act as strong support before 1.0790-1.0800 (50-day SMA, 200-day SMA).

On the upside, 1.0900 (static level, psychological level) aligns as first resistance before 1.0940 (static level) and 1.0980 (March 8 high).

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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