EUR/USD struggles to extend its earlier gains on Wednesday as the US Treasury’s bond-buyback announcement sparks a brief bout of volatility, pushing Treasury yields higher and helping the US Dollar (USD) trim its losses.
Traders also avoid placing aggressive bullish bets ahead of the European Central Bank’s (ECB) interest rate decision on Thursday. At the time of writing, EUR/USD trades around 1.1640 as it attempts to secure a break above the 200-day Simple Moving Average (SMA) at 1.1633.
Strategists at Scotiabank note that policy expectations remain firmly supportive ahead of this week’s ECB decision, with “a 25bpt rate hike…fully expected at Thursday’s meeting, and another 25bpts…priced in for December.” They “anticipate a hawkish hike tomorrow, as President Lagarde unveils the latest forecast and signals ongoing concern about upside risk,” helping to underpin the recent recovery in EUR/USD.
Scotiabank describes the tone as “neutral/bullish,” with the latest bounce in the Euro “tentative and negligible, but there nonetheless as spot tests marginal one-week highs in the mid-1.16s.” Momentum indicators are also improving, with the bank highlighting that “the RSI is in the upper 50 area and climbing, leaning toward further near-term gains.”
From a technical perspective, EUR/USD retains a constructive bias, with the pair holding above the 50-day and 100-day SMAs and marginally above the 200-day SMA. Price has formed a sequence of higher highs and higher lows since recovering from below 1.1400 in late July and briefly climbing above 1.1700 on August 21. The latest price action suggests that another higher low may be developing above the 100-day SMA, although buyers still need a decisive break above the 200-day average to strengthen the bullish outlook.
The daily Relative Strength Index (RSI) has steadied above the neutral 50 level and points higher near 58, indicating healthy but not excessive bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) remains slightly below zero, although the fading red histogram suggests that bearish pressure is easing.
On the upside, initial resistance is seen at the 1.1700 horizontal barrier, followed by a stronger hurdle around 1.1800. On the downside, the 200-day SMA near 1.1633 provides immediate support, followed by the 100-day SMA at 1.1561 and the 50-day SMA at 1.1522. A deeper decline could expose the 1.1400 structural support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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