EUR/USD Forecast: Euro shows no signs of slowing despite overbought conditions
- EUR/USD trades at multi-month highs above 1.0650 early Wednesday.
- The US Dollar stays under pressure ahead of key data releases from the US.
- The technical outlook points to overbought conditions in the near term.
EUR/USD continues to stretch higher after posting impressive gains for two consecutive days and trades at its highest level since early November above 1.0650 on Wednesday. The pair's near-term technical outlook points to overbought conditions but investors might refrain from betting on a steady US Dollar (USD) recovery unless the US data releases offer positive surprises.
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 | -2.88% | -2.06% | -0.69% | -0.36% | -1.04% | -1.25% | -1.58% | |
| EUR | 2.88% | 0.73% | 2.05% | 2.40% | 1.79% | 1.48% | 1.16% | |
| GBP | 2.06% | -0.73% | 1.42% | 1.66% | 1.04% | 0.74% | 0.42% | |
| JPY | 0.69% | -2.05% | -1.42% | 0.54% | -0.32% | -0.53% | -0.91% | |
| CAD | 0.36% | -2.40% | -1.66% | -0.54% | -0.54% | -0.90% | -1.22% | |
| AUD | 1.04% | -1.79% | -1.04% | 0.32% | 0.54% | -0.29% | -0.63% | |
| NZD | 1.25% | -1.48% | -0.74% | 0.53% | 0.90% | 0.29% | -0.32% | |
| CHF | 1.58% | -1.16% | -0.42% | 0.91% | 1.22% | 0.63% | 0.32% |
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).
Growing concerns over an economic downturn in the US triggered a USD selloff this week. In an interview with Fox News late Tuesday, US Commerce Secretary Howard Lutnick hinted that US President Donald Trump may be preparing to roll back tariffs on Canadian and Mexican imports less than 48 hours after imposing them. Early Wednesday, the improving risk mood makes it difficult for the USD to find demand and allows the pair to stretch higher. At the time of press, US stock index futures were up between 0.5% and 0.8%.
Meanwhile, the Euro benefits from the latest political developments in Germany. "The conservatives and the Social Democrats agreed to seek a loosening of Germany's debt brake to allow higher defence spending, as well as proposing to create a 500 billion euro ($529 billion) infrastructure fun," Reuters reported on Tuesday.
Later in the day, the US economic calendar will feature ADP Employment Change and ISM Services PMI data for February.
Markets expect private sector payrolls to rise by 140,000 following the 183,000 increase recorded in January. In the meantime, the ISM Services PMI is forecast to edge lower to 52.6 from 52.8. In case both of these data releases come in better than analysts' estimates, the USD could stage a rebound and cause EUR/USD to correct lower. On the flip side, disappointing readings are likely to feed into recession fears and put additional weight on the USD's shoulders.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays well above 70, reflecting overbought conditions. On the upside, 1.0700 (round level, static level) aligns as immediate resistance before 1.0760 (static level), and 1.0800 (static level, round level).
On the downside, 1.0650 (static level) could be seen as interim support ahead of 1.0600 and (round level) and 1.0510-1.0500 (static level, round level).
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.
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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.
