EUR/USD Forecast: Euro turns overbought but buyers could retain control
- EUR/USD trades at fresh multi-year highs above 1.1700 on Thursday.
- The broad-based USD weakness fuels the pair's rally.
- The technical outlook shows overbought conditions in the near term.
After closing the first three days of the week in positive territory, EUR/USD preserved its bullish momentum and climbed to its highest level since September 2021 above 1.1700 on Thursday. The pair's technical outlook points to overbought conditions but the broad selling pressure surrounding the US Dollar (USD) could allow buyers to retain control.
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 | -2.24% | -2.48% | -1.91% | -0.47% | -1.65% | -1.88% | -2.14% | |
| EUR | 2.24% | -0.26% | 0.37% | 1.82% | 0.57% | 0.38% | 0.06% | |
| GBP | 2.48% | 0.26% | 0.67% | 2.09% | 0.84% | 0.64% | 0.33% | |
| JPY | 1.91% | -0.37% | -0.67% | 1.45% | 0.24% | 0.09% | -0.32% | |
| CAD | 0.47% | -1.82% | -2.09% | -1.45% | -1.14% | -1.40% | -1.73% | |
| AUD | 1.65% | -0.57% | -0.84% | -0.24% | 1.14% | -0.22% | -0.49% | |
| NZD | 1.88% | -0.38% | -0.64% | -0.09% | 1.40% | 0.22% | -0.31% | |
| CHF | 2.14% | -0.06% | -0.33% | 0.32% | 1.73% | 0.49% | 0.31% |
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).
The USD weakened against its rivals late Wednesday and failed to stage a rebound on Thursday, with investors assessing the latest headlines surrounding the Federal Reserve's (Fed) leadership.
The Wall Street Journal said that United States President Donald Trump was considering to announce Fed Chairman Jerome Powell's replacement early, by September or October, to undermine him. According to the report, Kevin Hassett, Director of the National Economic Council, and Treasury Secretary Scott Bessent are among the names under consideration as Trump evaluates their commitment to lowering interest rates.
In the second half of the day, Durable Goods Orders for May and weekly Initial Jobless Claims data will be featured in the US economic calendar. A positive surprise in these data could help the USD find support and limit EUR/USD's upside. Nevertheless, investors could refrain from putting themselves in a position for a steady rebound in the USD.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose toward 80 and EUR/USD climbed above the upper limit of the ascending channel, highlighting overbought conditions in the near term.
In case EUR/USD fails to stabilize above 1.1720 (upper limit of the ascending channel) and confirms that level as resistance, 1.1650 (former resistance, static level) could be seen as next support before 1.1620 (mid-point of the ascending channel). On the upside, interim resistance seems to have formed at 1.1750 before 1.1800 (static level, round level) and 1.1840 (static 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.
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.
