EUR/USD Forecast: Euro consolidates gains following Monday rally
- EUR/USD consolidates Monday's strong gains, fluctuates near 1.1900.
- The technical outlook suggests that the bullish bias remains intact.
- The US economic calendar will feature Retail Sales data for December.
EUR/USD gathered bullish momentum on Monday and rose more than 0.8%, erasing the previous week's losses in the process. The pair struggles to build on the latest rally and trades in a tight range at around 1.1900 in the European morning on Tuesday.
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 | -0.79% | -0.59% | -1.28% | -0.79% | -0.92% | -0.48% | -1.31% | |
| EUR | 0.79% | 0.21% | -0.54% | 0.00% | -0.12% | 0.32% | -0.52% | |
| GBP | 0.59% | -0.21% | -0.40% | -0.20% | -0.33% | 0.11% | -0.73% | |
| JPY | 1.28% | 0.54% | 0.40% | 0.53% | 0.40% | 0.86% | -0.11% | |
| CAD | 0.79% | -0.00% | 0.20% | -0.53% | -0.02% | 0.33% | -0.52% | |
| AUD | 0.92% | 0.12% | 0.33% | -0.40% | 0.02% | 0.44% | -0.40% | |
| NZD | 0.48% | -0.32% | -0.11% | -0.86% | -0.33% | -0.44% | -0.83% | |
| CHF | 1.31% | 0.52% | 0.73% | 0.11% | 0.52% | 0.40% | 0.83% |
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 US Dollar (USD) came under heavy selling pressure on Monday, fuelling EUR/USD's advance. In addition to growing risks of an intervention by the Bank of Japan after the election outcome, a Bloomberg report claiming that Chinese regulators have verbally advised financial institutions to curb holdings of US Treasuries, caused the USD to weaken against its peers to start the week.
Early Tuesday, the benchmark 10-year US Treasury bond yield holds steady, slightly below 4.2%, and the USD Index clings to small daily gains near 97.00, suggesting that the negative impact of Monday's news on the USD have started to ease.
In the second half of the day, the US Census Bureau will release the Retail Sales data for December, which is unlikely to trigger a market reaction. On Wednesday, January Nonfarm Payrolls data could ramp up the USD volatility and drive EUR/USD's action. Hence, investors could refrain from taking large positions ahead of the employment report.
EUR/USD Technical Analysis:
In the 4-hour chart, EUR/USD trades at 1.1909. The 20-period Simple Moving Average (SMA) has turned higher yet remains just below the falling 50-period SMA, pointing to a nascent recovery in the short-term trend. The 100- and 200-period SMAs slope upward, reinforcing a broader bullish backdrop. RSI at 67 (firm) has eased from overbought, keeping momentum positive albeit somewhat stretched. Measured from the 1.1590 low to the 1.2025 high, the 38.2% retracement at 1.1859 provides initial support, while the 50% retracement at 1.1808 guards the pullback.
The rising 100- and 200-period SMAs underpin the medium-term structure, while a bullish crossover of the 20-period SMA above the 50-period one would strengthen upside momentum. A push through the 23.6% retracement at 1.1922 could extend gains into the next leg higher toward 1.2000 (round level, static level), whereas a drop beneath the 50% retracement at 1.1808 would jeopardize the bullish bias and expose deeper retracements.
(The technical analysis of this story was written with the help of an AI tool.)
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.
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.
