EUR/USD Forecast: Euro could extend uptrend if risk flows continue to dominate markets
- EUR/USD trades at its highest level in over two weeks above 1.0450.
- The US economic calendar will feature Retail Sales data for January.
- US stock index futures trade marginally higher on the day.
EUR/USD gathered bullish momentum in the late American session on Thursday and gained nearly 0.8% on the day. After touching its highest level since January 28 above 1.0470 in the Asian session on Friday, the pair seems to have entered a consolidation phase near 1.0460 in the European morning.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.47% | -1.51% | 0.90% | -0.89% | -0.98% | -0.69% | -0.65% | |
| EUR | 1.47% | 0.03% | 2.54% | 0.73% | 0.49% | 0.88% | 0.90% | |
| GBP | 1.51% | -0.03% | 2.34% | 0.65% | 0.46% | 0.85% | 0.88% | |
| JPY | -0.90% | -2.54% | -2.34% | -1.81% | -1.80% | -1.58% | -1.52% | |
| CAD | 0.89% | -0.73% | -0.65% | 1.81% | -0.07% | 0.17% | 0.20% | |
| AUD | 0.98% | -0.49% | -0.46% | 1.80% | 0.07% | 0.39% | 0.41% | |
| NZD | 0.69% | -0.88% | -0.85% | 1.58% | -0.17% | -0.39% | 0.03% | |
| CHF | 0.65% | -0.90% | -0.88% | 1.52% | -0.20% | -0.41% | -0.03% |
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).
EUR/USD edged lower in the early American session on Thursday after US President Donald Trump hinted in a social media post that they could announce reciprocal tariffs.
Later in the day, Trump refrained from imposing new tariffs, instead he signed a memo ordering his economics team to devise a plan for reciprocal tariffs on every country that charges duties on US imports. Markets breathed a sigh of relief with this development, allowing risk flows to return and causing the USD to weaken. In turn, EUR/USD gained traction and closed the day decisively higher.
Meanwhile, Trump's trade adviser, Peter Navarro, called German auto tariffs "grossly unfair" and a White House official said that Trump will no longer tolerate the EU's value-added tax.
In the second half of the day, January Retail Sales data will be featured in the US economic calendar. Markets expect a decrease of 0.1% on a monthly basis. A positive surprise could help the USD stay resilient against its rivals with the immediate reaction. Nevertheless, EUR/USD's losses are likely to remain limited in case risk flows continue to dominate the action in the financial markets. At the time of press, US stock index futures were trading marginally higher on the day.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70, suggesting that EUR/USD correct lower before extending its uptrend.
On the upside, 1.0500-1.0510 (round level, Fibonacci 78.6% retracement of the latest downtrend) could be seen as the resistance area before 1.0550 (static level) and 1.0600 (static level, beginning point of the downtrend). Looking south, first support could be spotted at 1.0440 (100-period Simple Moving Average (SMA), Fibonacci 61.8% retracement) ahead of 1.0400 (Fibonacci 50% retracement) and 1.0350-1.0360 (Fibonacci 38.2% retracement, 200-period SMA).
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.
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.
