- EUR/USD attracts some sellers on Monday, though it lacks bearish conviction.
- A break below 200-period SMA on H4 should pave the way for deeper losses.
- Any attempted move up is likely to confront a stiff barrier near the 1.1250 region.
The EUR/USD pair kicks off the new week on a weaker note amid a modest US Dollar (USD) uptick, bolstered by the optimism over a US-China trade deal. Spot prices, however, manage to hold above the 1.1200 mark and a one-month low touched last Thursday as traders await the US-China joint statement for more details about the agreement.
From a technical perspective, the recent breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart for the first time since early April was seen as a key trigger for bearish traders. Moreover, oscillators on the said chart are holding deep in bearish territory and have just started gaining negative traction on the daily chart, suggesting that the path of least resistance for the EUR/USD pair is to the downside.
Spot prices, however, have been showing some resilience below the 1.1200 round figure. The said handle now coincides with the 200-period SMA on the 4-hour chart, which, if broken decisively, will reaffirm the negative bias and make the EUR/USD pair vulnerable. The subsequent downfall has the potential to drag the currency pair further towards the 1.1110-1.1100 area, with some intermediate support near the 1.1130-1.1125 region.
On the flip side, the 1.1250 zone now seems to act as an immediate hurdle, above which the EUR/USD pair could aim to reclaim the 1.1300 round figure. Any further move up, however, is more likely to attract fresh sellers and remain capped near the 100-period SMA on the 4-hour chart, currently pegged near the 1.1350-1.1355 region. The latter should act as a pivotal point, which, if cleared decisively, could negate the near-term bearish bias.
EUR/USD 4-hour chart
Euro FAQs
The Euro is the currency for the 19 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.