EUR/USD Price Forecast: Strengthens to near 1.1500, while bearish bias persists below 100-day SMA
- EUR/USD gathers strength to near 1.1490 in Friday’s early Asian session.
- The negative tone of the pair prevails under the 100-day SMA, with bearish RSI momentum.
- The initial support level is seen at 1.1475; the first upside barrier emerges at 1.1550.
The EUR/USD pair trades in positive territory around 1.1490 during the early European session on Friday, bolstered by a weaker US Dollar (USD). However, the potential upside of the major pair might be limited amid a hawkish interest rate hike by the Federal Reserve (Fed). Traders will take more cues from Fed Governor Michelle Bowman’s speech later on Friday.
The Fed decided to raise its benchmark interest rate by a quarter-percentage point to a range of 3.75% to 4%. This is the first time the Fed has raised rates since July 2023 as the central bank continues to fight to tamp down inflation.
Last week, the European Central Bank (ECB) also lifted its key deposit rate by 25 basis points (bps) to 2.50% from 2.25% in a move widely expected by investors. The ECB will wait until December before delivering a final interest-rate increase to quell inflation triggered by conflict in the Middle East, according to Bloomberg economists.
Respondents in a Bloomberg survey anticipate the Governing Council to hike the deposit rate to 2.75% at its last meeting of the year, skipping the next opportunity to do so in late October.
Eurozone inflation steadies as ECB hawkish tone keeps October hike in play
Strategists at Scotiabank note that the latest euro area inflation data did little to shift the policy narrative, with the “final euro area CPI release” offering “little in terms of surprise.” They highlight that “headline inflation [is] remaining in the low 3% area and core hovering in the mid-2% range,” levels that continue to justify a firm policy stance from the ECB. In their view, “messaging from the ECB remains hawkish,” and this is reflected in market pricing, where investors now see “just over 50% chance of a hike in October with a cumulative 36bpts of tightening by December.”
Technical Analysis: EUR/USD maintains a negative outlook below the 100-day SMA
In the daily chart, EUR/USD keeps a bearish near-term tone as spot holds below the 100-day moving average and the Bollinger middle band. Price is hovering just above the lower Bollinger band, underscoring downside pressure, while the Relative Strength Index (14) around 38 hints at weak but not yet oversold momentum that could still allow further slippage before a more meaningful corrective bounce.
On the downside, immediate support emerges at the lower Bollinger band at 1.1475. A breach of the latter could expose the July 13 low of 1.1377, followed by the June 24 low of 1.1324.
On the topside, initial resistance is located at the 100-day moving average at 1.1550. Further north, the next hurdle to watch is the Bollinger middle band around 1.1595. A sustained recovery above these levels would be needed to ease the current bearish bias before the upper Bollinger band near 1.1712 comes into play.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.