EUR/USD Forecast: Euro consolidates near highs with the US Dollar on tenterhooks
- EUR/USD returns to levels near 1.2000 after bouncing up from the 1.1900 area.
- A hawkish Fed provided only temporary support for the US Dollar.
- ECB officials are starting to mention rate cuts, wary of excessive Euro strength.
The Euro posts moderate gains on Thursday, trading a few pips below the 1.2000 line at the time of writing, after bouncing from lows near 1.1900 on Wednesday. A “hawkish hold” by the Federal Reserve (Fed) and comments by US Treasury Secretary Scot Bessent provided some support to the USD, but failed to trigger a sustained recovery.
The Fed left its monetary policy unchanged, as expected, and revised up its economic growth projections, which prompted Chairman Jerome Powell to hint at a steady policy ahead. Investors, however, remain confident that further rate cuts will come when Trump replaces him with a more dovish chief in May.
US Treasury Secretary Scott Bessent provided additional support to the Greenback, assuring that Washington has a “strong-dollar policy” and denying rumours that the US administration would back an interventionto stabilize the Yen.
In Europe, the Euro's strength is starting to raise alarms among European Union (EU) and European Central Bank officials. ECB committee member Martin Kocher added pressure on the Euro on Wednesday, bringingtthe possibility of a further rate cut to the table. ECB officials are starting to worry about the negative consequences for inflation and for the Eurozone's trade activity stemming from a too strong Euro-
In the economic calendar on Thursday, the Eurozone Consumer Confidence might provide some distraction, while in the US, Trade Balance data, Factory Orders, and the weekly Jobless Claims might provide some guidance to the US Dollar.
Technical Analysis
EUR/USD is in a consolidation phase after finding resistance at the 261.8% Fibonacci extension of the January 16-20 uptrend.
Technical indicators are mixed. The Relative Strength Index (RSI) stands at 67, highlighting a positive trend, although the Average Convergence Divergence (MACD) has crossed below the Signal line near the zero level, with the histogram turning negative, which points to a fading upside momentum.
Support levels are at Wednesday's low in the area of 1.1900, and the January 27 low, near 1.1850. On the upside, the 1.2000 psychological level is holding bulls on Thursday, ahead of the long-term high, at 1.2082 hit on Tuesday.
(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
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.
