The euro ended Thursday’s session roughly where it started, which looks resilient until you read the data behind it. May’s preliminary surveys showed a mess: the Composite Purchasing Managers Index (PMI) fell even further below the 50 points separating growth from decline, a decline in industry, and in services one of the weakest readings in months. A currency holding flat on such a print is not forceful, it is carried.
Worn, not bought
The lift came entirely from the dollar side. Risk appetite surged in the US in the afternoon amid rumors that a US-Iran ceasefire was to be announced within minutes of the announcement, knocking the dollar off its all-time highs and allowing the euro to regain ground lost earlier in the day. Then the story became clear. Talks are still ongoing, Iran is still leaning towards imposing traffic tolls in the Strait of Hormuz and still refusing to put nuclear materials on the table, and the United States has called out both of these red lines. Briefly toasted ceasefire markets never came to fruition, meaning the euro’s stability rests on dollar fluctuations that may not survive the weekend.
The central bank lacks cover
With activity surveys pointing firmly to the south, the European Central Bank (ECB) has less and less room to remain composed in its forecasts. Consumer confidence is up slightly, which is the only glowing spot of the day, but it does little to offset the services sector, which is now in full decline. The longer policymakers talk about resilience while the research data deteriorates beneath them, the more the discrepancy between the official narrative and the numbers begins to resemble wishful thinking.
Next week the calendar is in full swing
Friday did not bring much content for the bloc apart from meetings of EcoFin and the Eurogroup and speeches by the ECB’s chief economist. A heavier list will follow next week: a slate of ECB speakers, reports from the ECB’s monetary policy meetings, and Thursday’s German and eurozone confidence surveys, all alongside the U.S. Price Index for Basic Personal Consumption Expenditures (PCE), the Federal Reserve’s (Fed) preferred measure of inflation. The PCE version is the real tooth version for this pair. The novel Fed chairman will also take office on Friday, adding a layer of uncertainty to the deal on the dollar side.
The 200 day line is the whole game
The chart nicely shows this confrontation. The euro is sitting right on the 200-day EMA, just above the 1.1600 level, the line that roughly determines the pair’s fair value for the entire year. Maintain this trend and bulls can continue to argue for a move back towards 1.1650 and the 50-day EMA near 1.1700. Lose this and given that the activity data is of no facilitate, the path opens towards 1.1550 below. Bias is that any positives should be treated with suspicion while PMIs are read this way. For now, the euro is a passenger in the dollar car, not the one driving it.
EUR/USD 5-minute chart
Technical analysis
On the five-minute chart, the EUR/USD rate is 1.1621. The pair remains slightly bearish on the day as it trades just below the daily open at 1.1626, suggesting that upside attempts remain confined as the market digests the earlier selling pressure. The Stochastic RSI has rebounded from the oversold area in the mid-30s, indicating some softening in downside momentum, but not yet signaling a compelling bullish reversal.
Upside, immediate resistance is at the daily opening near 1.1626 and a sustained break above this level would be needed to improve the short-term tone. In the absence of clear nearby support levels from the provided data set, traders may continue to treat petite declines as sensitive while the pair remains below the daily open and momentum indicators only indicate a modest corrective rebound rather than a trend change.
On the daily chart, EUR/USD is trading at 1.1619, maintaining a bearish bias in the tiny term as the spot price holds below the 50-day exponential moving average (EMA) at 1.1683, while holding just above the 200-day EMA at 1.1618. This setup suggests that the upside is likely to be supply-side around the 1.1680 area even as the stochastic RSI moves deep into the oversold area near 11, suggesting the downside momentum could be extended over the very tiny term.
On the upper end, initial resistance lies at the 50-day EMA around 1.1683, and sustained trading below this barrier would maintain downward pressure. On the other hand, the first support line is the 200-day EMA at 1.1618; A clear daily close below this level would open the door to further declines, while a hold above this level could encourage a corrective bounce within a broader structure with confined containment.
(The technical analysis for this story was written with the facilitate of an AI tool.)
Frequently asked questions about the euro
The euro is the currency of the 20 European Union countries belonging to the euro zone. It is the second most widely traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with average daily turnover exceeding $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% discount on all trades, 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 euro area. The ECB sets interest rates and manages monetary policy. The ECB’s primary task is to maintain price stability, which means controlling inflation or stimulating economic growth. Its basic tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. Decisions are made by the heads of the euro zone’s national banks and six eternal members, including ECB President Christine Lagarde.
Inflation data in the euro area, measured by the Harmonized Index of Consumer Prices (HICP), is an essential econometric indicator for the euro. If inflation rises more than expected, especially above the ECB’s target of 2%, this obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to interest rates will typically benefit the euro as they make the region more attractive as a place to park money for global investors.
The published data are used to assess the condition of the economy and may affect the euro. Indicators such as GDP, PMIs for industry and services, employment and consumer sentiment surveys may influence the direction of the single currency. A forceful economy is good for the euro. Not only will it attract more foreign investment, but it may prompt the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is delicate, the euro will likely fall. The economic data for the four largest eurozone economies (Germany, France, Italy and Spain) is particularly essential as they constitute 75% of the eurozone economy.
The next essential data release for the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what the country spends on imports over a given period. If a country produces a highly sought after export, its currency will only appreciate in value due to the additional demand generated by foreign buyers wanting to buy those goods. Therefore, a positive net trade balance strengthens the currency and vice versa in the case of a negative balance.
