The EUR/USD pair holds steady around 1.1635 during the early Asian trading hours on Thursday. Traders prefer to wait on the sidelines ahead of the European Central Bank (ECB) policy meeting and the release of the US August Producer Price Index (PPI) later in the day.
The ECB is likely to raise interest rates on Thursday for the second time this year, driven by surging energy prices due to the ongoing US-Iran conflict. Traders have fully priced in a 25 basis points (bps) move to 2.5% as the latest data shows Eurozone inflation rose back above 3% in August.
“A September hike looks all but locked in,” said Alessia Berardi, head of global macroeconomics at the Amundi Investment Institute. “Inflation remains elevated and should stay sticky over the next few months before easing toward the second half of next year,” Berardi added.
Traders will closely monitor the US PPI inflation data on Thursday for more clues about the US interest rate path. The headline PPI is expected to show a rise of 5.3% YoY in August, versus 4.7% prior. Meanwhile, the core PPI is projected to show an increase of 4.6% in August, compared to 4.2% in July. Any signs of hotter inflation in the US could boost the US Dollar (USD) and create a headwind for the major pair in the near term.
Euro steadies as ECB expectations firm on higher oil
Strategists at Scotiabank note that the Euro is treading water in early North American trade, with the EUR “entering Wednesday’s NA session unchanged vs. the USD following an overnight push to a fresh one week high.” They argue that “fundamentals remain supportive as ECB rate expectations firm in response to the latest rally in oil prices, reflecting the ECB’s greater sensitivity to energy price risks in the current environment.”
Looking ahead to this week’s policy decision, Scotiabank highlights that “a 25bpt rate hike is fully expected at Thursday’s meeting, and another 25bpts has been priced in for December.” The bank’s strategists “anticipate a hawkish hike tomorrow, as President Lagarde unveils the latest forecast and signals ongoing concern about upside risk,” reinforcing the market’s conviction in a continued tightening bias.
Technical Analysis: EUR/USD keeps a mildly bullish vibe in the near term
In the daily chart, EUR/USD holds a mildly bullish near-term bias as price hovers just above the Bollinger middle band, effectively the 20-day simple moving average (SMA), while also remaining comfortably over the 100-day SMA near 1.1560. This configuration suggests that dips are being supported within the recent consolidation envelope, with the Relative Strength Index (14) around 58 hinting at steady, though not extreme, upside momentum within the prevailing range.
On the topside, immediate resistance emerges at the Bollinger upper band around 1.1700, where prior attempts have tended to stall, and a clear break above this ceiling would open the way for a more decisive extension of the recovery. On the downside, initial support is seen at the Bollinger middle band near 1.1625, followed by the 100-day SMA around 1.1560 and the lower Bollinger band close to 1.1555, a clustered zone that should act as a key floor while the broader constructive tone persists.
(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.
