EUR/USD Forecast: Euro looks to extend recovery as mood improves
- EUR/USD trades in positive territory above 1.1800 early Tuesday.
- Upcoming employment-related data releases from the US are postponed.
- The ECB will announce monetary policy decisions on Thursday.
EUR/USD gains traction and trades in positive territory above 1.1800 on Tuesday after posting losses for two consecutive trading days. The pair's technical outlook highlights an easing of bearish pressure.
The US Dollar (USD) preserved its strength on Monday following a bullish closing to the previous week and caused EUR/USD to stretch lower. During the American trading hours, the US Bureau of Labor Statistics (BLS) announced that they will not be releasing data because of the partial government shutdown. As a result, upcoming JOLTS Job Openings and Nonfarm Payrolls data will be postponed.
Nevertheless, US stock index futures trade in positive territory in the European morning on Tuesday, pointing to a risk-positive market atmosphere. In case the market mood remains upbeat in the second half of the day, the USD could have a hard time attracting buyers and allow EUR/USD to push higher.
On Wednesday, the Eurostat will publish the Harmonized Index of Consumer Price (HICP) inflation data for January before the European Central Bank (ECB) announces monetary policy decisions on Thursday.
EUR/USD Technical Analysis:
In the 4-hour chart, EUR/USD trades at 1.1818. The 20-period Simple Moving Average (SMA) has turned lower but remains above the 50-, 100- and 200-period SMAs, preserving a bullish medium-term structure. Price trades beneath the 20- and 50-period SMAs at 1.1889 and 1.1866, while holding above the 100- and 200-period SMAs at 1.1761 and 1.1747. The RSI (14) recovers slightly after falling below 40, hinting at fading bearish pressure.
Measured from the 1.1590 low to the 1.2026 high, the 50% retracement at 1.1808 offers immediate support, with the 61.8% retracement at 1.1756 providing a lower floor. On rebounds, resistance would align at the 50- and 20-period SMAs between 1.1866 and 1.1889. A sustained hold above 1.1808 would keep the pullback contained, while a close below 1.1756 could open a test of the 200-period SMA at 1.1747.
(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.
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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.
