The EUR/USD pair posts modest gains near 1.1655 during the early Asian session on Friday. Markets might turn cautious later in the day as Federal Reserve (Fed) Chairman Kevin Warsh is set to deliver his much-awaited keynote address in Jackson Hole.
Hawkish stance of the European Central Bank (ECB) and firm economic data from the Eurozone provide some support to the Euro (EUR) against the US Dollar (USD). ECB Executive Board member Isabel Schnabel said on Wednesday that borrowing costs will need to rise further as the lengthy conflict in the Middle East and a surprisingly strong Eurozone economy pose upside risks to inflation.
The Eurozone economy has also proved resilient, with data on Friday showing business activity growing at its fastest pace this year. Markets are now pricing in nearly 96% odds that the ECB will increase the deposit rate to 2.50% at its September policy meeting, according to the ECB Watch tool.
Traders will closely watch Fed Chair Kevin Warsh’s speech Friday at the Economic Policy Symposium in Jackson Hole, Wyoming. This event could offer some clues about the US economy and monetary policy.
“In short, we expect Warsh to signal that he is prepared to raise rates again if inflation does not continue to moderate,” said Mark Cabana, head of U.S. rates strategy at Bank of America. “By contrast, if he uses the speech to focus solely on broader structural themes such as productivity or demographics, we worry markets could interpret the message as dovish,” Cabana added.
Euro support softens but ECB policy still seen favoring EUR strength
Strategists at Scotiabank note that the Euro has lost some traction as yield dynamics shift, observing that “fundamentally, the EUR has seen a minor loss of support from the latest turn in GermanUS yield spreads.” Nonetheless, they stress that policy divergence remains a constructive medium-term driver, adding that “we continue to feel that the outlook for relative central bank policy favors EUR strength as the ECB moves to tighten in September while markets continue to fade their pricing of Fed hikes.”
Technical Analysis: EUR/USD keeps a bullish vibe above the key SMA
In the daily chart, EUR/USD retains a bullish near-term bias as spot holds above both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. Price action is edging toward the upper Bollinger band resistance, while the Relative Strength Index (14) around 65 suggests firm but not yet extreme upside momentum, hinting that buyers still control the short-term tone.
On the downside, initial support is aligned in the 1.1585–1.1575 area, where the Bollinger middle band and the 100-day SMA cluster to underpin the advance, ahead of stronger structural demand near the lower Bollinger band at 1.1465. On the topside, a clear break above the upper Bollinger band resistance at 1.1710 would open the door for further gains, whereas failure to overcome this barrier could trigger a corrective pullback toward the cited support zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
