EUR/USD Forecast: Euro eases from highs in risk-off markets
- EUR/USD is showing moderate losses but remains at four-month highs above 1.1850.
- Market concerns of a joint US-Japan action to support the Yen keep the USD under pressure.
- A new tariff threat by US President Trump has soured investors' mood on Monday.
EUR/USD shows moderate losses on Monday, although it remains steady at four-month highs near 1.1860 at the time of writing, after peaking at 1.1876 earlier on the day. Market concerns of a US-Japan intervention to stem Yen weakness are keeping the US Dollar on the defensive, while a mild risk-averse market is keeping the Euro from rallying further.
Reuters reported that the US Federal Reserve (Fed) conducted rate checks on Friday, normally the antecedent of an intervention, prompting investors to cut their US Dollar long positions. This sent the Greenback lower across the board on Friday, boosting the EUR/USD to fresh four-month highs above 1.1800.
The Euro, however, has been capped at the 1.1875 area, before turning negative in daily charts, weighed by the risk-off mood. US President Donald Trump’s latest tariff threat, this time to Canada, has brought trade concerns back to the table and is likely to keep risk appetite subdued.
The calendar is thin on Monday. In the Eurozone, the German IFO Business Climate Index and a speech by the European Central Bank’s (ECB) Governor Nagel will provide some distraction. In the US, all eyes will be on November’s Durable Goods Orders report, although the highlight of the week will be the Fed’s Monetary Policy Decision on Wednesday.
Technical Analysis
EUR/USD remains fairly steady at 1.1859 at the European session opening, with technical indicators pointing to a strong bullish momentum. The Moving Average Convergence Divergence (MACD) remains above zero and is edging higher; the Relative Strength Index (RSI), however, starts to be heavily overbought, reaching levels that often anticipate a bearish correction.
The pair hit resistance at the 127.2% Fibonacci retracement of the early January sell-off, in the 1.1875 area. Above here, the September 2025 high, at 1.1918, would come into focus.
On the downside, price action opened a gap at the Asian session opening, and gaps tend to close. In that sense, a correction towards the late-December highs, at 1.1804, should be considered. Further down, the next target is the January 23 low, near 1.1730.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on January 26 at 07:55 GMT to say that the EUR/USD pair has been capped at the 1.1875 area, and not at the 1.1900 area, as previously reported.)
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
