EUR/USD Price Analysis: Consolidates gains below 1.0750, upside potential seems limited
- EUR/USD trades with mild losses near 1.0745 in Wednesday’s early European session.
- The negative outlook of the pair remains intact below the key 100-day EMA.
- The first upside barrier will emerge at 1.0786; the initial support level is seen at 1.0650.
The EUR/USD pair consolidates gains around 1.0745 during the early European session on Wednesday. Data released on Tuesday showed that the annual inflation rate in the Eurozone cooled down in June, in line with the market consensus. This figure has triggered hopes for potential interest rate cuts by the European Central Bank (ECB), which might cap the upside of the Euro (EUR) for the time being.
The major pair keeps the bearish vibe unchanged on the daily chart as it holds below the key 100-day Exponential Moving Average (EMA). In the near term, further consolidation cannot be ruled out as the Relative Strength Index (RSI) hovers around the 50-midline, suggesting the neutral momentum of the pair.
The crucial upside barrier for the major pair is seen at 1.0786, the 100-day EMA. Further north, the next hurdle is located at 1.0835, the upper boundary of the Bollinger Band. A decisive break above the latter will expose 1.0885, a high of May 15.
On the downside, the lower limit of the Bollinger Band near 1.0650 acts as an initial support level for EUR/USD. The additional downside filter to watch is the 1.0600 psychological level. A breach of this level will see a drop to 1.0522, a low of October 26.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on 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 but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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