EUR/USD Price Forecast: Weakens to near 1.1400 as ECB hike bets recede, bearish vibe prevails

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The EUR/USD pair trades on a negative note near 1.1410 during the early European trading hours on Wednesday. Cooling inflation in Germany has lowered expectations for the European Central Bank (ECB) rate hikes, weighing on the Euro (EUR) against the US Dollar (USD).

EUR/USD weakens to around 1.1410 in Wednesday’s early European session.
The negative outlook of the major pair remains intact below the 100-day SMA, with bearish RSI momentum.
The immediate resistance level is seen at 1.1485; the first downside target to watch is 1.1320.

Germany’s Consumer Price Index (CPI) inflation fell to 2.3% in June, down from 2.6% in May, according to Destatis on Tuesday. This figure came in softer than the market expectations of 2.5%. ECB President Christine Lagarde last week said that there was no need for "forceful" action, citing falling energy prices and the lack of "second-round" effects like higher wage demands that could further stoke inflation.

Traders brace for the preliminary reading of the Harmonized Index of Consumer Prices (HICP) from the Eurozone. In case of hotter-than-expected outcomes, this could lift the shared currency in the near term.

On the US docket, the ADP Employment and ISM Manufacturing Purchasing Managers Index (PMI) reports will be published later on Wednesday. All eyes will be on the Nonfarm Payrolls (NFP) data on Thursday, which is expected to show 111,000 job additions in June.

Technical Analysis:

In the daily chart, EUR/USD maintains a bearish near-term tone as it holds below the 20-day Bollinger simple moving average (SMA) and the 100-day moving average (MA). The pair is drifting near the lower half of the recent Bollinger envelope, while the 14-period Relative Strength Index (RSI) around 36 suggests weak, still-negative momentum rather than an immediate oversold condition.

On the topside, initial resistance is seen at the 20-day Bollinger SMA near 1.1485, followed by the 100-day MA around 1.1632 and the upper Bollinger band close to 1.1650, which together outline a dense supply zone capping recovery attempts. On the downside, the June 29 low of 1.1381 acts as the next notable support. Any follow-through selling below this level could expose further weakness toward lower Bollinger band at approximately 1.1320, followed by the 1.1300 psychological level.

(The technical analysis of this story was written with the help of an AI tool.)

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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.

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