EUR/USD managed to eke out a modest gain of 0.2% on Wednesday, yet the rally’s potential appears to be capped. This week, all eyes are on the inflation data from the US, as prices are accelerating more swiftly than analysts predicted. Following Wednesday’s unforeseen rise in the Consumer Price Index (CPI), attention is shifting to the Producer Price Index (PPI) inflation figures.
Throughout Wednesday’s trading, EUR/USD fluctuated, largely hovering near the lower end of the range before investors responded to the surprising spike in US CPI inflation by pushing it higher. On Thursday, the spotlight shifts to the US PPI inflation reports since European economic data is taking a back seat during this period.
Germany’s final Harmonized Index of Consumer Prices (HICP) numbers are also expected on Thursday. However, these figures are unlikely to stir much market volatility since they have been thoroughly anticipated and included in current pricing. The yearly headline German HICP inflation is forecasted to stick at 2.8% for January.
Earlier this year, January saw US CPI rising more than anticipated, clocking in at 3.0% annually, surpassing the expected 2.9%. Notably, the spike was driven by a month-over-month gain of 0.5% when markets were only expecting a 0.3% increase, considering the previous month’s 0.4% figure.
Looking ahead to Thursday, the focus will be on core US PPI inflation figures, predicted to slightly ease to 3.3% year-over-year from 3.5%. Yet, Wednesday’s inflation uptick has made investors a tad uneasy, sparking concerns about inflation becoming more ingrained within the US economy.
EUR/USD Price Forecast
EUR/USD continues on a bit of a roller-coaster ride, dancing just south of the 50-day Exponential Moving Average (EMA) situated around 1.0425. Despite being held below this crucial technical mark, short-sellers are struggling to build momentum owing to a supportive level near 1.0300.
Euro FAQs
The Euro serves as the currency for 19 European countries within the Eurozone, ranking as the second most traded currency worldwide, trailing only the US Dollar. In 2022, it accounted for 31% of all forex transactions, with an average daily turnover exceeding $2.2 trillion. The EUR/USD pairing is the most actively traded currency pair globally, comprising nearly 30% of all transactions. This is followed by pairs like EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB), located in Frankfurt, Germany, acts as the reserve bank for the Eurozone, setting interest rates and directing monetary policy. Its main goal is to ensure price stability, balancing between controlling inflation and spurring growth, primarily through interest rate adjustments. Typically, high interest rates or the anticipation of them bolster the Euro. The ECB’s monetary policy decisions arise during eight annual meetings attended by Eurozone national bank heads and six permanent members, including President Christine Lagarde.
Eurozone inflation, gauged via the Harmonized Index of Consumer Prices (HICP), is a key metric for the Euro. Surpassing the ECB’s 2% inflation target could prompt the bank to raise interest rates, thus benefiting the Euro by attracting global investors. Economic indicators, such as GDP and PMIs, greatly impact the Euro. A robust economy generally strengthens the currency by drawing foreign investments and possibly leading to interest rate hikes by the ECB. Conversely, weak economic indicators could negatively affect the Euro, especially for major economies like Germany, France, Italy, and Spain, which collectively comprise 75% of the Eurozone’s economy.
Finally, the Trade Balance is another critical indicator for the Euro, measuring differences between export earnings and import spending. A favorable Trade Balance can enhance a currency’s value due to increased demand from foreign buyers eager for specific exports, whereas an unfavorable balance can weaken it.
