EUR/USD Forecast: Euro buyers hesitate after Monday rally
- EUR/USD trades below 1.0400 in the European morning on Tuesday.
- The US Dollar shakes off the bearish pressure following US President Trump's tariff threats.
- The near-term technical outlook suggests that the bullish bias remains intact.
EUR/USD gathered bullish momentum at the beginning of the week and gained more than 1% on Monday. With the US Dollar (USD) benefiting from the souring risk mood, however, the pair lost its traction early Tuesday and retreated below 1.0400.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.05% | -0.93% | -0.42% | -0.25% | -0.82% | -0.94% | -0.54% | |
| EUR | 1.05% | 0.07% | 0.55% | 0.71% | 0.30% | 0.00% | 0.39% | |
| GBP | 0.93% | -0.07% | 0.42% | 0.63% | 0.25% | -0.07% | 0.33% | |
| JPY | 0.42% | -0.55% | -0.42% | 0.18% | -0.35% | -0.62% | -0.29% | |
| CAD | 0.25% | -0.71% | -0.63% | -0.18% | -0.51% | -0.69% | -0.31% | |
| AUD | 0.82% | -0.30% | -0.25% | 0.35% | 0.51% | -0.39% | 0.02% | |
| NZD | 0.94% | -0.01% | 0.07% | 0.62% | 0.69% | 0.39% | 0.21% | |
| CHF | 0.54% | -0.39% | -0.33% | 0.29% | 0.31% | -0.02% | -0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The USD came under heavy selling pressure following news of US President Donald Trump stopping short of announcing day-one tariffs at his inauguration ceremony on Monday. In the early Asian session, however, Trump crossed the wires again, saying that they could impose tariffs on China if they make a TikTok deal and China doesn't approve it. Furthermore, he said that they are planning to impose 25% tariff on imports from Mexico and Canada, triggering a USD rally in the Asian trading hours on Tuesday.
Despite the broad-based USD strength, EUR/USD's losses remain limited for now. EUR/CAD and EUR/MXN pairs both register strong gains in the early European session, suggesting that the Euro is able to capture capital outflows out of the Canadian Dollar and Mexican Peso.
The US economic calendar will not feature any high-tier macroeconomic data releases on Tuesday. Hence, investors are likely to pay close attention to the risk perception.
In case Wall Street's main indexes come under bearish pressure following the long weekend, the USD could preserve its strength and cause EUR/USD to continue to stretch lower.
EUR/USD Technical Analysis
Despite EUR/USD's recent pullback, the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60, suggesting that the bullish bias remains intact. The pair could face stiff resistance at 1.0390-1.0400, where the 200-period Simple Moving Average (SMA) meets the Fibonacci 50% retracement of the latest downtrend. In case EUR/USD stabilizes above this area, 1.0440 (Fibonacci 61.8% retracement) could be seen as next resistance before 1.0500 (round level, Fibonacci 78.6% retracement).
On the downside, supports could be spotted at 1.0350 (Fibonacci 38.2% retracement), 1.0320 (100-period SMA) and 1.0290 (Fibonacci 23.6% retracement).
Euro FAQs
The Euro is the currency for the 19 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.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
