- EUR/USD dipped below 1.1150 as bidders struggled to maintain balance.
- The breakdown in bullish market sentiment has given the US dollar some breathing room.
- Investors will be focused on EU and US inflation figures due to be released this weekend.
EUR/USD pared recent gains and retreated to a new record high this year on Wednesday as broad market expectations of a US Federal Reserve interest rate cut in September kept broader market risk appetite at the top.
There's not much of note on the economic calendar this midweek, but the latest U.S. Gross Domestic Product (GDP) data will be released on Thursday, which will be of interest, but no major moves are expected as markets are largely pricing second-quarter GDP growth to stabilize at around 2.8% annualized.
Friday's economic data suggests markets may be lulled into a bored trance with the latest data on pan-EU consumer price index (HICP) inflation due to be released early in the European market session. EU core HICP inflation is expected to continue to decline across the board, forecast to ease to 2.8% year-on-year in August from 2.9% previously.
With U.S. personal consumption expenditures price index (PCE) inflation due on Friday remaining the key indicator for the week, investors are on the sidelines, waiting for signs that inflation will continue to ease or at least not rise fast enough for the Federal Reserve to enact a long-awaited interest rate cut on September 18th.
EUR/USD Price Prediction
EUR/USD dropped below the 1.1150 level on Wednesday as bidders struggled to keep the fiber on the upside. The pair is still on the defensive well above the 200-day exponential moving average (EMA) at 1.0850, but a continued decline could soon see the price drop to the 50-day EMA around 1.0940.
EUR/USD daily chart
Frequently asked questions about the Euro
The euro is the currency of 20 European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, Accounted for With 31% of all foreign exchange trading and an average daily volume of over $2.2 trillion, EUR/USD is the most traded currency pair in the world. accounting All trades are off around 30% followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank for the eurozone. The ECB sets interest rates and manages monetary policy. The ECB's main mission is to maintain price stability, which means either keeping inflation down or stimulating growth. The ECB's main tool is to raise or lower interest rates. Relatively higher interest rates, or the expectation of rising interest rates, typically benefit the euro and vice versa. The ECB Governing Council decides monetary policy at its eight meetings per year. Decisions are made by the heads of the eurozone national banks and the six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric input for the euro. If inflation rises more than expected, especially if it exceeds the ECB's target of 2%, the ECB will be forced to raise interest rates to keep inflation in check. Relatively high interest rates compared to other countries usually benefit the euro, as they make the eurozone a more attractive place for global investors to park their funds.
Data released measures the health of the economy and can affect 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, it can also trigger the ECB to raise interest rates, which directly strengthens the euro. On the other hand, weak economic data can cause the euro to weaken. Economic data from the eurozone's four largest economies (Germany, France, Italy, and Spain) is particularly important as they account for 75% of the eurozone's economy.
Another important piece of data about the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces exports that are in high demand, its currency will only increase in value due to the additional demand it generates from foreign buyers looking to purchase these goods. So a positive trade balance makes a currency stronger, and a negative one makes it stronger.
