EUR/USD ticks into new multi-year high as Fed rate calls looms large
- EUR/USD rose a scant 0.2% on Tuesday, testing 1.0950.
- Markets are tilted risk-on despite a high-impact Fed rate call on the cards.
- An update to the Fed’s own interest rate projections is due on Wednesday.
EUR/USD rose slightly on Tuesday, climbing one-fifth of one percent to continue testing the 1.0950 region. Fiber clipped into a fresh 23-month high as broad-market risk appetite tilts firmly risk-on ahead of the Fed’s upcoming rate call on Wednesday. Final European Harmonized Index of Consumer Prices (HICP) figures are also due on Wednesday, though the final print is expected to show no material change from the preliminary print. European Central Bank (ECB) President Christine Lagarde will be making an appearance on Thursday, as the EU leaders’ summit gets underway during the back half of the trading week.
Forex Today: Fed expected to keep rates unchanged
The Federal Reserve (Fed) is set to announce its latest interest rate decision on Wednesday. The CME’s FedWatch Tool indicates that market participants largely expect the Fed to maintain its current rate for the next two meetings, with a potential quarter-point rate reduction anticipated at the Federal Open Market Committee (FOMC) meeting in June. This week, the FOMC will also release its updated interest rate forecasts, which could significantly alter expectations for rate cuts if the Fed policymakers’ outlook on interest rates diverges significantly from existing market predictions.
EUR/USD price forecast
From a technical viewpoint, the Stochastic Oscillator is currently in overbought territory above 80.00, though it is showing signs of flattening, indicating a reduction in bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) displays flat green bars, suggesting a lack of strong trend conviction. Collectively, these indicators imply that the pair may enter a consolidation phase prior to making a definitive move.
Looking ahead, resistance is positioned at the 1.1000 level, which has historically served as a significant barrier. On the downside, initial support can be found around 1.0850, with more substantial support near the 20-day moving average close to 1.0800. A decline below these thresholds could trigger a corrective reaction, while consistent trading above 1.0900 would maintain the overall bullish outlook.
EUR/USD daily 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.