The EUR/USD pair declined for a consecutive day on Friday, driven by renewed inflation worries linked to energy prices. This scenario has fueled speculation about a possible rate hike from the US Federal Reserve, thereby bolstering the US dollar amid escalating tensions with Iran.
Currently, spot prices are around 1.1435, but the absence of significant selling warrants some caution before expecting a substantial pullback from Wednesday’s peak, which was the highest in nearly four weeks.
From a technical standpoint, this week’s momentum above the 23.6% Fibonacci retracement level of the April to June decline found resistance near the 200-period simple moving average (SMA) on the 4-hour chart.
The Relative Strength Index (RSI) is sitting around a neutral mark of 50, while the Moving Average Convergence Divergence (MACD) is showing a slight negative trend. These momentum indicators imply that any bullish movements might be fairly limited.
In terms of downside potential, significant structural support can be found at the Fibonacci level around 1.1330, which aligns with the current bear market trend and might attract buyers if the price continues to dip.
On the upside, immediate resistance is established by the 200-period SMA at 1.1477, just before the 38.2% retracement level at 1.1508. Should bullish momentum strengthen, breaching these levels could open the path to higher Fibonacci barriers set at 1.1563 and 1.1618.
EUR/USD 4-hour chart
Euro Frequently Asked Questions
The euro serves as the currency for 20 EU nations within the euro area. It’s the second most traded currency globally, right after the US dollar. In 2022, it made up about 31% of foreign exchange trades, averaging daily transactions exceeding $2.2 trillion. The EUR/USD pair is the world’s most traded, representing roughly 30% of all trades, followed by pairs like EUR/JPY (4%) and EUR/GBP (3%).
Headquartered in Frankfurt, the European Central Bank (ECB) is the reserve institution for the euro area. Its primary role involves setting interest rates and managing monetary policy. The ECB’s main goal is to ensure price stability by controlling inflation or fueling growth, mainly by adjusting interest rates. Higher rates or anticipated increases often support the euro, and the opposite is also true. The ECB Governing Council determines policy decisions during its eight annual meetings.
Inflation metrics in the eurozone, particularly the Harmonized Index of Consumer Prices (HICP), play a pivotal role in the euro’s valuation. If inflation rises unexpectedly, especially beyond the ECB’s 2% target, the central bank typically reacts by raising interest rates to curb inflation. Higher interest rates relative to other nations tend to strengthen the euro, attracting global investors looking for a stable place for their money.
Economic data releases are crucial in assessing the euro’s trajectory. Key indicators such as GDP, manufacturing and services PMIs, unemployment rates, and consumer sentiment can all sway the currency’s direction. A robust economy typically boosts the euro, as it attracts foreign investment and might lead the ECB to raise interest rates. Conversely, weak economic signals could weaken the euro’s position.
Another critical indicator for the euro is the trade balance, which compares a country’s earnings from exports with its spending on imports. When a country is known for desirable export products, its currency can appreciate due to increased demand from overseas buyers. Hence, a positive trade balance tends to bolster the currency, while a negative one may lead to depreciation.
