- The EUR/USD lost a fifth of a percent against the Dollar on Tuesday.
- Fed-focused US data agenda dominates investor sentiment.
- EU data remains sparse this week, traders focus on upcoming Fed rate decision.
Bullish momentum behind the Euro evaporated on Tuesday, dragging the pair below the 1.0500 level as traders prepare for the Federal Reserve’s (Fed) final rate decision of 2024. European data is relatively sparse this week, forcing EUR/USD traders to wade through a wealth of US data.
European markets largely overlooked appearances by several European Central Bank (ECB) officials earlier in the week, and despite December PMI numbers in Europe exceeding expectations. EU Services PMI survey figures still remain in contraction as concerns over a deepening economic slowdown in Europe continue to unsettle investors and businesses.
US retail sales figures rose 0.7% month-on-month, raising some concern among investors that the Fed may not need to pursue an aggressive rate-cutting strategy after all, especially given a recent spike in inflation indicators. Despite this, markets still largely price in a third consecutive rate cut by the Fed on Wednesday, with a 95% chance in favor of a 25bp cut according to the CME’s FedWatch tool.
EUR/USD Price Forecast
The EUR/USD daily chart reveals a period of consolidation just above the 1.0450 level after the pair’s sharp fall from its late October highs near 1.1000. This recent stabilization coincides with investor expectations surrounding the Federal Reserve’s anticipated quarter-point rate cut on Wednesday, which has injected a degree of uncertainty into the trajectory of the dollar. Price action remains capped by the 50-day EMA at 1.0658, with the long-term bearish bias underscored by the downward-sloping 200-day EMA at 1.0809. A break below the key support at 1.0450 could lead the bears to retest the psychological level of 1.0400, which served as a critical floor in late November.
The MACD indicator at the bottom of the chart shows that bearish momentum has eased slightly as the MACD line flattens and approaches a bullish crossover with the signal line. However, the histogram remains in negative territory, suggesting that bullish attempts may still face significant headwinds. A Fed rate cut on Wednesday, if accompanied by a dovish tone, could further weaken the Dollar, paving the way for a bounce towards 1.0600 and potentially the resistance of the 50-day EMA. Conversely, a hawkish surprise could reinforce the dollar’s strength, triggering renewed selling pressure on the EUR/USD pair and opening the door for a retest of the yearly lows. Traders are likely to remain cautious ahead of the Fed’s decision, keeping the price action in a tight range in the near term.
EUR/USD Daily Chart
Euro FAQs
The Euro is the currency of the 19 countries of the European Union that belong to the eurozone. It is the second most 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 more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2 %).
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the increase or decrease in interest rates. Relatively high interest rates (or the expectation of higher rates) tend to benefit the euro and vice versa. The Governing Council of the ECB makes decisions on monetary policy at meetings held eight times a year. Decisions are made by the directors of the Eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are an important econometric indicator for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts tend to benefit the euro, making the region more attractive as a place for global investors to park their money.
The published data measures the health of the economy and may have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can 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 raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the Euro is likely to fall. The economic data for the four largest eurozone economies (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
Another important data that is published about 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 during a given period. If a country produces highly in-demand export products, its currency will gain value simply from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
