EUR/USD is attracting new buyers near the 1.1710 area during the Asian session on Tuesday and building on the previous day’s strong rebound from the 1.1660 area, or its lowest level in almost four weeks. Spot prices are currently trading around 1.1735, up 0.10% on the day, and appear set to rise further amid a supportive fundamental backdrop.
The US dollar (USD) fell for the second day in a row and is further away from its highest level since December 10, which it reached on Monday, amid dovish expectations from the US Federal Reserve. Moreover, bets that the European Central Bank (ECB) is done cutting interest rates appear to be supporting the common currency and acting as a tailwind for EUR/USD.
Intraday strength beyond the confluence at 1.1735 – which includes the 100-hour simple moving average (SMA) and the 50% Fibonacci retracement level of the 1.1808-1.1660 drop – confirms the validity of the positive outlook. Moreover, the Moving Average Convergence Divergence (MACD) indicator has turned positive and is heading higher, indicating improving bullish momentum.
Additionally, the Relative Strength Index (RSI) at 59 supports further gains, with the 61.8% Fibonacci retracement level. Retracement level, around mid-1.1700 levels, forming the next resistance level. A push through these barriers would reinforce the corrective tone, while failure to remove them would leave EUR/USD vulnerable to renewed consolidation within the recent range.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
EUR/USD one-hour chart
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on 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 euro area. The European Central Bank 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 to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence 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, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data 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 during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
