EUR/USD weakens below key averages as US Dollar strength caps rebounds
- The Euro gives back intraday gains as the US Dollar stays supported by upbeat US data.
- Markets see room for the Fed to stay on hold in the near term, keeping the Dollar bid.
- Bearish technical signals continue to cap recovery attempts in EUR/USD.
The Euro (EUR) turns lower against the US Dollar (USD) on Friday, surrendering intraday gains as renewed demand for the Greenback keeps the pair on the defensive. At the time of writing, EUR/USD is trading flat near 1.1600, after briefly sliding to its lowest level since November 28.
The US Dollar draws support from stronger-than-expected US economic data, which has reinforced the view that the Federal Reserve (Fed) can afford to hold off on cutting interest rates in the near term.
Further supporting the US Dollar, comments from White House National Economic Council Director Kevin Hassett helped ease investor concerns over recent political noise surrounding the Fed. Speaking to Fox Business Network, Hassett said he expects “there’s nothing to see here,” adding that he believes the cost overruns cited by Fed Chair Jerome Powell are related to factors such as asbestos.
From a technical perspective, EUR/USD remains under sustained selling pressure, dipping below its key moving averages on the daily chart. The pair is trading beneath the 21-day SMA near 1.1707 and the 50-day and 100-day SMAs clustered around 1.1660-1.1665, reinforcing a bearish structure and highlighting strong overhead dynamic resistance.
Momentum indicators also favor sellers. The Moving Average Convergence Divergence (MACD) remains below the signal line and in negative territory, with a flat negative histogram pointing to persistent bearish momentum. The Relative Strength Index (RSI) hovers near 34, reflecting weak buying interest and keeping the pair close to oversold conditions.
On the downside, the 1.1585-1.1600 zone is acting as immediate support. A clear break below this area could open the door toward 1.1550, followed by the 1.1500 psychological level.
On the upside, any corrective rebound is likely to face stiff resistance near 1.1660-1.1700, where the 50-day, 100-day and 21-day SMAs converge. Only a daily close back above this confluence zone would ease near-term bearish pressure and allow for a deeper recovery.
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.