EUR/USD Forecast: Euro rebounds after testing key support level
- EUR/USD recovers toward 1.0400 following the decline seen in the European session.
- The technical outlook points to a bullish bias in the near term.
- The improving risk mood makes it difficult for the US Dollar to preserve its strength.
After spending the European session under bearish pressure, EUR/USD gains traction and recovers toward 1.0400 in the American trading hours.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.07% | -0.89% | -0.39% | -0.51% | -0.90% | -0.94% | -0.47% | |
| EUR | 1.07% | 0.12% | 0.60% | 0.46% | 0.24% | 0.02% | 0.48% | |
| GBP | 0.89% | -0.12% | 0.42% | 0.33% | 0.13% | -0.11% | 0.36% | |
| JPY | 0.39% | -0.60% | -0.42% | -0.11% | -0.46% | -0.65% | -0.25% | |
| CAD | 0.51% | -0.46% | -0.33% | 0.11% | -0.33% | -0.44% | 0.03% | |
| AUD | 0.90% | -0.24% | -0.13% | 0.46% | 0.33% | -0.31% | 0.17% | |
| NZD | 0.94% | -0.02% | 0.11% | 0.65% | 0.44% | 0.31% | 0.28% | |
| CHF | 0.47% | -0.48% | -0.36% | 0.25% | -0.03% | -0.17% | -0.28% |
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).
In the early Asian session on Tuesday, US President Donald Trump said that they could impose tariffs on China if they make a TikTok deal and China doesn't approve it. Additionally, he said that they are planning to impose 25% tariff on imports from Mexico and Canada as early as February 1. These remarks caused markets to adopt a cautious stance and allowed the US Dollar to benefit from safe-haven flows.
The bullish opening in Wall Street, however, made it difficult for the USD to gather further strength and opened the door for a recovery in EUR/USD. At the time of press, major equity indexes in the US were up between 0.3% and 0.5%.
In case risk rally picks up steam in the remainder of the session, EUR/USD could extend its recovery. On the flip side, a bearish reversal in stock markets could cap EUR/USD's upside.
Meanwhile, the data on Tuesday showed the headline German ZEW Economic Sentiment Index declined to 10.3 in January from 15.7 in December, missing the market consensus of 15.3. On a positive note, the Eurozone ZEW Economic Sentiment Index improved to 18 from 17 in December.
On Wednesday, European Central Bank President Christine Lagarde will participate in the dialogue 'Beyond Crisis: Unlocking Europe's Potential' during the World Economic Forum in Davos, Switzerland.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60, suggesting that the bullish bias remains intact.
The pair could face immediate resistance at 1.0390-1.0400, where the 200-period Simple Moving Average (SMA) meets the Fibonacci 50% retracement of the latest downtrend. If EUR/USD manages to flip this area into support, 1.0440 (Fibonacci 61.8% retracement) could be seen as next resistance before 1.0500 (round level, Fibonacci 78.6% retracement).
On the downside, 1.0350 (Fibonacci 38.2% retracement) aligns as first support ahead of 1.0320 (100-period SMA) and 1.0290 (Fibonacci 23.6% retracement).
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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
