- EUR/USD holds steady above 1.0850 in the European session on Wednesday.
- The Fed is widely expected to leave the policy rate unchanged.
- The revised Summary of Economic Projections could drive the US Dollar’s valuation.
EUR/USD seems to have stabilized slightly above 1.0850 in the early European session on Wednesday after registering small losses on Tuesday. The pair’s near-term technical outlook points to a lack of recovery momentum as markets gear up for the Federal Reserve’s (Fed) policy announcements.
Retreating US Treasury bond yields and the rebound seen in Wall Street’s main indexes made it difficult for the US Dollar (USD) to gather strength in the second half of the day on Tuesday and allowed EUR/USD to erase a large portion of its daily losses.
Euro price this week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.12% | 0.10% | 0.22% | 0.38% | 1.68% | 0.66% | 0.60% | |
| EUR | -0.12% | -0.02% | 0.11% | 0.27% | 1.55% | 0.53% | 0.46% | |
| GBP | -0.09% | 0.02% | 0.14% | 0.30% | 1.59% | 0.57% | 0.48% | |
| CAD | -0.23% | -0.09% | -0.13% | 0.16% | 1.45% | 0.42% | 0.36% | |
| AUD | -0.38% | -0.27% | -0.31% | -0.17% | 1.28% | 0.27% | 0.18% | |
| JPY | -1.69% | -1.59% | -1.54% | -1.48% | -1.32% | -1.03% | -1.11% | |
| NZD | -0.66% | -0.54% | -0.56% | -0.40% | -0.26% | 1.02% | -0.07% | |
| CHF | -0.58% | -0.46% | -0.49% | -0.35% | -0.20% | 1.10% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5% following the March policy meeting.
Fed Preview: Forecasts from 15 major banks, risk of a hawkish shift in the dot plot.
Market participants will pay close attention to the revised Summary of Economic Projections (SEP), the so-called dot plot. In December, the dot plot showed that policymakers were forecasting a 75 basis points reduction in the policy rate in 2024. In case the new dot plot reaffirms that Fed officials are still favoring three 25 bps cuts in 2024, markets could lean toward a policy pivot in June.
According to the CME FedWatch Tool, there is 36% probability that the Fed will leave the policy rate unchanged in June. The market positioning suggests that the USD could come under selling pressure in case the Fed event convinces investors of a rate reduction in June.
On the other hand, a hawkish revision to the SEP, with officials shifting their projections toward a 50 bps cut in 2024, could provide a boost to the USD and weigh heavily on EUR/USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays well below 50, highlighting a lack of recovery momentum.
On the downside, 1.0860 (Fibonacci 38.2% retracement of the latest uptrend) aligns as immediate support before 1.0830 (200-period Simple Moving Average (SMA), Fibonacci 50% retracement) and 1.0800 (Fibonacci 61.8% retracement).
In case EUR/USD rises above 1.0880 (100-period SMA), 1.0900–1.0910 (Fibonacci 23.6% retracement, 50-period SMA) could be seen as next resistance ahead of 1.0960 (end-point of the uptrend).
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.
