|

EUR/USD Forecast: Euro correction attempts to remain limited

  • EUR/USD has retreated modestly following Thursday's impressive rally.
  • Near-term technical outlook points to overbought conditions for the pair.
  • Dovish Fed commentary could make it difficult for the US Dollar to find demand.

EUR/USD has retreated to the 1.0850 area early Friday after having touched its highest level since April at 1.0868 late Thursday. The near-term technical outlook suggests that the pair could stage a technical correction before the next leg higher but losses are likely to remain limited.

The data published by the US Bureau of Labor Statistics revealed on Thursday that annual inflation in the US, as measured by the Consumer Price Index (CPI), declined to 6.5% in December from 7.1% in November as expected. The Core CPI, which excludes volatile food and energy prices, fell to 5.7% from 6%. Both of these readings came in line with analysts' estimates and the US Dollar Index fluctuated wildly while market participants tried to figure out how these data would influence the Federal Reserve's rate outlook.

Dovish comments from Fed officials, however, made sure that investors continued to move away from the US Dollar. 

Federal Reserve Bank of Philadelphia President Patrick Harker said that it was time for future Fed rate hikes to shift to 25 basis points increments. Similarly, Atlanta Federal Reserve Bank President Raphael Bostic noted he was comfortable with a 25 bps increase at the next meeting.

On the flip side, European Central Bank (ECB) policymaker Martins Kazaks said that there was no rationale for markets to bet on a rate cut and added that rates should rise well into the restrictive territory.

While the Fed is now widely expected to ease on policy tightening moving forward, ECB policymakers try to make sure that markets understand their commitment to the hawkish outlook. Hence, the fundamental side of the story doesn't point to a steady decline in EUR/USD, at least in the near term.

Later in the session, the University of Michigan's Consumer Sentiment Survey will be featured in the US economic docket. Unless there is a significant increase in the one-year and five-year ahead inflation expectations components of the survey, the US Dollar is likely to stay on the back foot. It's worth noting, however, that profit-taking ahead of the weekend could cap the pair's upside.

EUR/USD Technical Analysis

Static resistance for the pair seems to have formed at 1.0870. Once the pair rises above that level, it is likely to rise toward 1.0900 (psychological level) and target 1.0970 (static level from March 2022, former support).

On the downside, 1.0800 (psychological level, static level) aligns as first support before 1.0770 (20-period Simple Moving Average (SMA)), 1.0725 (static level) and 1.0700 (psychological level).

Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart stays well above 70, pointing to overbought conditions.

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Eren Sengezer

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.

More from Eren Sengezer
Share:

Editor's Picks

EUR/USD turns higher toward 1.1700 ahead of key US CPI data

EUR/USD erases losses and turns north toward 1.1700 in the European session on Tuesday. The pair draws support from renewed US Dollar struggle, as traders turn cautious ahead of the US CPI inflation data, due later in the day at 13:30 GMT.

GBP/USD rises toward 1.3500 as traders await US CPI report

GBP/USD picks up fresh bids and rises toward 1.3500 in European trading on Tuesday. Traders now await the US CPI data release for fresh direction on the US Dollar, which will significantly impact the pair's performance ahead. 

Gold extends the range play below $4,600 and record high as traders await US CPI report

Gold remains on the defensive below the $4,600 mark through the first half of the European session though it remains close to the all-time peak, touched the previous day, amid a supportive fundamental backdrop. The US Dollar gains some positive traction following the previous day's decline and turns out to be a key factor acting as a headwind for the commodity.

CPI Data expected to show stable inflation in December with limited implications for Fed policy

The US Bureau of Labor Statistics will publish December’s Consumer Price Index report on Tuesday at 13:30 GMT. The report is expected to show that prices remained broadly stable in the last month of 2025. It’s a key read on inflation and could stir some short-term moves in the US Dollar.

More pressure on the Federal Reserve emerges

News broke on Sunday night that the Federal Reserve received grand jury subpoenas from the Department of Justice on Friday, escalating the Trump administration's pressure on the nation's central bank. 

Meme Coins Price Prediction: DOGE, SHIB, and PEPE bulls struggle to regain strength

Meme coins, including Dogecoin, Shiba Inu, and Pepe remain under extreme selling pressure, recording roughly seven days of downtrend following the January 4 spike. The meme coins risk a bearish shift in momentum as buying pressure subsides, potentially leading to further declines.