The euro (EUR) falls against the US dollar (USD) on Friday, retreating from intraday gains as renewed dollar demand keeps the pair on the defensive. At the time of writing, the EUR/USD rate remains unchanged near 1.1600, after briefly dropping to its lowest level since November 28.
The US dollar is supported by stronger-than-expected US macroeconomic data, which reinforce the view that the Federal Reserve (Fed) can afford to refrain from cutting interest rates in the near future.
Comments from White House National Economic Council Director Kevin Hassett, while further supporting the U.S. dollar, helped ease investor concerns about the recent political noise around the Fed. In an interview with Fox Business Network, Hassett said he expected “nothing to see here,” adding that he believed the cost overruns mentioned by Fed Chair Jerome Powell were related to factors such as asbestos.
From a technical perspective, EUR/USD remains under continued selling pressure, falling below key moving averages on the daily chart. The pair is trading below the 21-day SMA near 1.1707 and the 50-day and 100-day SMAs centered around 1.1660-1.1665, which strengthens the bearish structure and highlights robust overhead lively resistance.
Dynamics indicators also favor sellers. The Moving Average Convergence Divergence (MACD) remains below the signal line and in negative territory, with a flat negative histogram indicating continued bearish momentum. The relative strength index (RSI) is hovering near 34, reflecting tender buying interest and keeping the pair close to oversold conditions.
On the other hand, the 1.1585-1.1600 zone is acting as direct support. A clear break below this area could open the door towards 1.1550 and then the psychological level of 1.1500.
On the other hand, any rebound corrections are likely to encounter robust resistance near 1.1660-1.1700, where the 50-day, 100-day and 21-day SMAs converge. Only a daily close above this confluence zone would ease the short-term pressure on the bears and allow for a deeper rebound.
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 constant members, including ECB President Christine Lagarde.
Inflation data in the euro area, measured by the Harmonized Index of Consumer Prices (HICP), is an crucial 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 robust 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 tender, the euro will likely fall. The economic data for the four largest eurozone economies (Germany, France, Italy and Spain) is particularly crucial as they constitute 75% of the eurozone economy.
The next crucial 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.
