On Monday morning in Europe, the EUR/USD pair climbed to about 1.1655. This change comes as the US dollar weakened against the euro, likely fueled by fresh worries surrounding the autonomy of the US Federal Reserve (Fed). Traders are on edge, anticipating the release of the US Consumer Price Index (CPI) inflation report scheduled for Tuesday.
Fed Chairman Jerome Powell recently indicated that the US Department of Justice might pursue criminal charges against him due to his Senate testimony last June regarding substantial renovations costing an estimated $2.5 billion. He described this situation as unprecedented, perceiving it as a direct challenge to the central bank’s independence. This development has been putting pressure on the dollar and offering some support for major currency pairs in the short term.
At the same time, we are seeing that safe-haven currencies, including the dollar, might gain value as geopolitical tensions increase. Reports indicate that protests in Iran have led to significant casualties, and US President Donald Trump has warned of consequences should Iranian authorities harm civilians. Conversely, Iran has cautioned the US and Israel against any interference.
Technical analysis:
According to the daily chart, the 100-day EMA currently shows a gradual rise at 1.1665, suggesting a slow improvement in the medium-term outlook. However, the price remains just below this level, with the average potentially expanding further. It hovers near the lower end of the Bollinger Bands at 1.1650, indicating an increase in volatility but also some downside risk. This band offers initial support, though stability may be regained if daily closes exceed the average.
The RSI stands at a solid 41, making a recovery from earlier lows but still below the 50 midline, which puts a cap on momentum. In terms of resistance, the middle band of the Bollinger Bands is at 1.1728, while the upper band, sitting at 1.1817, could halt any long-term recovery. A consistent movement above these levels may shift the overall bias towards a more positive outlook.
Euro Frequently Asked Questions
The euro serves as the currency for 20 countries within the European Union that are part of the eurozone. It stands as the second most traded currency globally, right after the US dollar. In 2022, it made up 31% of all foreign exchange transactions, averaging more than $2.2 trillion in daily trading volume. The EUR/USD pair is the most commonly traded currency pair worldwide, contributing to around 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB), based in Frankfurt, Germany, acts as the reserve bank for the euro area. The ECB sets interest rates and regulates monetary policy with the goal of maintaining price stability. This translates to controlling inflation or stimulating growth, primarily by adjusting interest rates. Typically, high interest rates or the anticipation of rate increases favor the euro, while the opposite tends to weaken it. Monetary policy decisions are made during the eight annual meetings of the ECB Governing Council, comprising heads of eurozone national banks and permanent members, including ECB President Christine Lagarde.
The inflation data for the eurozone, captured by the Harmonized Index of Consumer Prices (HICP), serves as a crucial economic indicator. If inflation surpasses expectations—especially beyond the ECB’s 2% target—the ECB is likely to increase interest rates to combat rising prices. When interest rates are relatively high compared to other countries, it tends to attract global investors to the euro area, thereby enhancing demand for the euro.
Economic data releases are essential for gauging the euro’s strength and can influence its value significantly. Metrics such as GDP, manufacturing and services PMIs, employment figures, and consumer sentiment surveys can all impact the single currency. A robust economy is generally advantageous for the euro, potentially drawing more foreign investments and encouraging the ECB to raise interest rates, which can strengthen the euro further. On the flip side, weak economic indicators could lead to depreciation of the euro. Data from the four largest economies in the eurozone—Germany, France, Italy, and Spain—are particularly pivotal, as they account for around 75% of the euro area’s economy.
Another significant metric for the euro is the trade balance, which reflects the difference between a country’s earnings from exports and its spending on imports over a certain period. A nation that produces highly desirable goods for export generally sees an appreciation in its currency due to increased demand from foreign markets. Therefore, if a country has a positive trade balance, its currency is likely to strengthen; conversely, a negative balance could lead to a weaker currency.
