EUR/USD Forecast: Euro steadies near highs with the US Dollar under pressure
- EUR/USD remains steady in the upper range of the 1.1800s with the 1.1907 high at hand.
- Trump rattled markets again, announcing additional tariffs on South Korea.
- The Fed kicks off its two-day monetary policy meeting amid doubts about its independence.
The Euro is practically flat against the US Dollar on Tuesday, trading at 1.1870 at the time of writing, with a four-month high of 1.1907 within reach. US President Donald Trump’s erratic trade policies, investors’ hopes of further Federal Reserve (Fed) rate cuts, and growing speculation about a US government shutdown are weighing heavily on the greenback.
Trump rattled markets once again on Monday, announcing 10% additional tariffs on imports from South Korea, after threatening a 100% tariff on Canada on Sunday and a trade rift with the European Union last week over his quest to annex Greenland. Beyond that, Senate Democrats have threatened a partial government shutdown this weekend as immigration raids in Minnesota have already killed two people.
On the fundamental front, the Fed begins its two-day monetary policy meeting on Tuesday with its autonomy under question. Chairman Jerome Powell’s term ends in May, and Trump has shown his willingness to replace him with a more dovish partisan, who is expected to accelerate the central bank’s easing cycle.
All this is keeping the US Dollar under pressure, and has boosted the Euro nearly 2.5% up in just over a week. Market sentiment is positive on Tuesday, which is another positive factor for the Euro. In the Economic calendar, the US Consumer Confidence might provide some fundamental guidance later on the day, ahead of the speeches of European Central Bank President Christine Lagarde and Bundesbank President Joachim Nagel.
Technical Analysis
EUR/USD holds most of the previous day's gains, with technical indicators showing a softer bullish momentum. The Moving Average Convergence Divergence (MACD) histogram remains positive but has contracted from recent highs, and the Relative Strength Index (RSI) remains near 70, levels consistent with a firm bullish trend, after pulling back from oversold territory.
The pair was capped at 1.1907 on Monday, at a short distance to the September 2025 peak of 1.1918. Further up, the 1.2000 psychological level emerges as a potential target. Supports are at Monday's low around 1.1830 and the January 23 low near 1.1725.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on January 27 at 09:44 GMT to say that the EUR/USD January 21 support is at 1.1725 and not 1.1925 as previously reported.)
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.
