- EUR/USD traded at the 1.1150 level on Thursday.
- Broad-based dollar selling has led to bullish trends in U.S. dollar-based currency pairs.
- Eurozone data remains weak as markets focus on Fed rate cuts.
EUR/USD made higher highs on Thursday and held firm above the 1.1150 level, but most of the bullish momentum for this pair is coming from a broad market sell-off in the US Dollar rather than a specific bullish correction in the Euro.
European economic data has been particularly thin this week. For euro traders, the only thing worth paying much attention to is a speech by European Central Bank (ECB) President Christine Lagarde on Friday, but that will be during U.S. market hours. She will be speaking at the Michel Camdessus Central Bank Lecture Series in Washington, DC.
Forex Today: Will the Bank of Japan Surprise the Markets?
In the United States, initial jobless claims for the week ending September 13 fell to 219,000, down from a revised 231,000 the previous week and below the median market forecast of 230,000. The Philadelphia Fed's September manufacturing index also beat expectations by a large margin, with the manufacturing spread index improving to 1.7 from a seven-month low of -7.0, well above the forecast of -1.0.
Fed Chairman Jerome Powell convinced markets that the Fed's massive 50 basis point interest rate cut this week was not a knee-jerk reaction to deteriorating economic conditions, but rather a preemptive attempt to jump-start the U.S. labor market. Chairman Powell successfully rebranded the entire half-percentage point rate cut as a “recalibration,” and investors responded to the Fed's latest policy shift by rallying the U.S. dollar across the board and pouring money into higher-yielding assets.
EUR/USD Price Prediction
Despite this week's Fed-led rally, EUR/USD continues to trade just above 1.1100. The post-Fed rally has helped stabilize Fiber midweek, but meaningful momentum has yet to emerge, potentially sending the pair into a battle of attrition. However, EUR/USD is cycling on the charts at the upper end of recent momentum, and short pressure will likely struggle to achieve a complete pullback to the 50-day exponential moving average (EMA) near 1.1000.
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.
