EUR/USD Forecast: Euro nears one-month lows at 1.1618 amid a firm US Dollar
- EUR/USD extends its reversal from highs near 1.1700, with one-month lows at 1.1618 on focus.
- Strong US PPI and Retail Sales data provided an additional impulse to the US Dollar on Wednesday.
- Trump calmed fears about the Fed's independence, assuring that he has no intention of firing Powell.
EUR/USD depreciates for the third consecutive day on Thursday, trading right above 1.1630 at the time of writing, with the one-month low, at 1.1618, coming closer. Strong US macroeconomic figures and easing concerns about the US Federal Reserve’s autonomy are underpinning support for the Greenback.
US data released on Wednesday revealed a larger-than-expected acceleration in producer prices, and a strong rebound in retail consumption in November, providing further reasons for the US Federal Reserve (Fed) to keep interest rates unchanged in the coming months.
Meanwhile, US President Trump calmed markets, assuring in an interview with Reuters that he has no plan to oust Chairman Jerome Powell, despite the criminal investigation against him. Investors’ concerns about the Fed’s independence sent the US Dollar (USD) tumbling earlier in the week and prompted most of the world's central bankers to sign a statement defending Powell.
Trump also said that he believes that the killings of protesters in Iran have subsided, which lessens the chance of a military intervention against the Islamic Republic. This has eased some of the risk aversion seen over the last few days.
In the European docket, the focus will be on November's Industrial Production figures. In the American session, the NY Empire State and the Philadelphia Fed manufacturing reports will attract some attention ahead of more speeches from Fed policymakers.
Technical Analysis
The EUR/USD trades at 1.1631, extending its reversal from weekly highs near 1.1700 with price action contained within a descending channel. The Moving Average Convergence Divergence (MACD) holds around the zero line. highlighting a neutral tone, and the Relative Strength Index (RSI) is at 38, reflecting weak momentum.
Bears are aiming for the January 9 low, in the vicinity of 1.1615. Further down, the area between the bottom of the channel, now around 1.1600, and the December 2 low, at 1.1590, is likely to be targeted. To the upside, Wednesday's high, at 1.1660, might pose some resistance ahead of the channel top, at 1.1690, and the January 12 high, near 1.1700.
(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.
