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- EUR/USD Price Analysis: Holds below 1.0850, the path of least resistance is to the downside
EUR/USD Price Analysis: Holds below 1.0850, the path of least resistance is to the downside
- EUR/USD holds positive ground near 1.0825 in Wednesday’s Asian session.
- The negative stance of the pair remains intact below the 100-period EMA and bearish RSI indicator.
- The first upside target to watch is 1.0845; the key support level is seen in the 1.0795-1.0805 zone.
The EUR/USD pair trades on a stronger note around 1.0825, snapping the two-day losing streak during the Asian session on Wednesday. However, the upside of the major pair might be capped amid the uncertainty surrounding further rate cuts in September by the European Central Bank (ECB) after disappointing economic growth data from Germany. Later on Wednesday, the Federal Reserve’s (Fed) interest rate decision will be in the spotlight.
Technically, the bearish outlook for EUR/USD remains in play as the major pair holds below the key 100-period Exponential Moving Average (EMA) on the 4-hour chart. The downward momentum is supported by the Relative Strength Index (RSI), which stands below the midline around 43.90. This suggests that the path of least resistance is to the downside.
The potential upside target will emerge at 1.0845, the 100-period EMA. Any follow-through buying above this level, the pair would resume its upside. The next hurdle is located at 1.0870, portraying the confluence of the upper boundary of the Bollinger Band and a high of July 29. Further north, the additional upside filter to watch is the 1.0900 psychological mark.
On the other hand, the crucial support level is seen at the 1.0795-1.0805 region, representing the lower limit of the Bollinger Band, a round figure, and a low of July 30. A breach of the mentioned level will see a drop to 1.0776, a high of July 1. The next contention level is located at 1.0709, a low of July 2.
EUR/USD 4-hour chart
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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