On Wednesday in Europe, the EUR/USD pair climbed slightly, hitting around 1.1640. The major currency pairings are showing a gradual uptick, with the euro maintaining its position amidst ongoing uncertainty tied to the U.S.-Iran agreement.
Concerns about the U.S.-Iran deal have intensified after Tehran criticized the “defensive strikes” carried out by the U.S. Central Command. Just this past Monday, the U.S. launched an attack it described as an act of “self-defense,” aiming to “protect our military from threats posed by the Iranian military.”
Meanwhile, the U.S. dollar dipped a bit during European trading, with the dollar index down by 0.1% to around 99.05.
Attention now turns to upcoming inflation figures from both the U.S. and Germany, set to be released on Thursday and Friday.
The forecast for U.S. core PCE inflation, which is the benchmark for the Federal Reserve, suggests an annual increase of 3.3%, up from March’s 3.2%, while the monthly increase is expected to be around 0.3%.
In Germany, the early estimates for the Harmonized Index of Consumer Prices (HICP) indicate it will remain steady at 2.9% year-on-year for May.
EUR/USD Technical Analysis
Currently, EUR/USD is hovering around 1.1645. However, the short-term outlook for this currency pair remains bearish, constrained by the 20-day exponential moving average (EMA) at 1.1664.
The Relative Strength Index (RSI) is just below the neutral 50 line, sitting at 46.7, which suggests a decrease in bullish momentum, rather than indicating it’s significantly oversold.
If looking at potential support levels, initial resistance is found near the prior upward trend line, around 1.1602. A drop below this area could lead to larger declines towards 1.1500. Conversely, to relieve immediate downward pressure, a daily closing rate above the 20-period EMA at 1.1664 would open the way for a more sustained recovery towards 1.1700.
(The technical analysis in this story has been assisted by AI tools.)
Euro Frequently Asked Questions
The euro serves as the currency for 20 European Union nations within the euro area. It ranks as the second most traded currency globally after the U.S. dollar, constituting 31% of all foreign exchange transactions in 2022, with an average daily trading volume exceeding $2.2 trillion. The EUR/USD pair is the most frequently traded worldwide, accounting for around 30% of all trades, followed by EUR/JPY, EUR/GBP, and EUR/AUD.
The European Central Bank (ECB), based in Frankfurt, serves as the reserve bank for the euro area. It is tasked with setting interest rates and managing monetary policy. A primary goal is to maintain price stability, which includes keeping inflation in check while promoting economic growth, largely via interest rate adjustments. Higher interest rates or expectations of such tend to support the euro, and decisions are made during the ECB’s eight yearly meetings, involving leaders from national banks and the ECB’s key officials, including Christine Lagarde, the president.
Inflation data for the Eurozone, reflected in the Harmonized Index of Consumer Prices (HICP), is a critical economic indicator for the euro. Should inflation rise unexpectedly, particularly beyond the ECB’s 2% target, it often prompts interest rate hikes from the bank to control inflation. Relatively high interest rates compared to other nations generally bolster the euro, as they draw global investors interested in securing higher returns.
Upcoming data releases will assess economic health and may influence the euro’s value. Factors like GDP, manufacturing and services PMIs, employment rates, and consumer sentiment are key influences. A robust economy tends to uplift the euro, attracting foreign investment and possibly motivating the ECB to raise interest rates, while weak indicators will likely have the opposite effect. Results from the four largest economies within the euro area—Germany, France, Italy, and Spain—are particularly significant, representing 75% of the euro area’s economy.
Another vital metric related to the euro is the trade balance, which highlights the difference between export earnings and import costs over a specific time. Countries producing desirable export goods typically see their currency appreciate due to heightened demand from foreign buyers. Thus, a positive net trade balance strengthens a currency, while a negative one can weaken it.
