EUR/USD Forecast: Pair torn between optimism and inflation fears, has two reasons to rise

  • EUR/USD has been on the back foot as US yields push the dollar higher. 
  • Conversely, optimism about the global economy is boosting the euro.
  • The German IFO Business Climate and Fed Chair Powell's words may send the pair higher.
  • Monday's four-hour chart is painting a mixed picture. 

How many shots in the arm are needed to vaccinate against COVID-19? The medical debate has been raging on and so has the economic one – too many economic boosts may cause overheating, and this battle is tearing the dollar apart. 

On the one hand, the greenback is a safe-haven currency and therefore suffers as the world is emerging from the health and economic crisis. President Joe Biden's stimulus will help America recover and funds can flow out of the US to other places. This thinking is pushing EUR/USD higher.

On the other hand, an overdose raises fears of inflation – with oil and copper prices already shooting higher, also for their own reasons. In turn, investors are selling of US Treasuries, pushing yields to new highs. And that makes the dollar attractive. 

At the time of writing, yields are having the upper hand, pushing EUR/USD down toward 1.21. However, two forces may change that. First, the German IFO survey for February is set to show optimism in Europe's largest economy, providing support to the euro.

Nevertheless, the world's most popular currency pair mostly moves to the greenback's tune. Jerome Powell, Chairman of the Federal Reserve, is scheduled to testify before Congress on Tuesday and Wednesday, but his prepared remarks may already be published on Monday.

Will the Fed tolerate rising returns on US debt for much longer? While higher yields are a healthy sign of upbeat expectations for growth, they may also choke the recovery. Powell will likely reiterate the bank's commitment to supporting the recovery – which means looser monetary policy for longer – and that could weigh on the greenback. 

Investors will also be watching for developments related to the stimulus. Democrats have a narrow majority in the House and the tightest of margins in the Senate. The 50-50 – broken only by Vice-President Kamala Harris – means every senator from Biden's part has significant power. Comments related to the stimulus bill may also move markets. Investors are confident that some bill will pass, yet probably below $1.9 trillion proposed by the president. 

All in all, the current slide may turn into an upswing. 

EUR/USD Technical Analysis

Euro/dollar is battling 1.2105, which is where the 50 Simple Moving Average on the four-hour chart hits the price. The 200 SMA is also approaching it. Momentum is marginal to the upside and the pair is trading above the 100 SMA. All in all, the picture is mixed. 

Looking up, resistance awaits at 1.2140, which was a high point on Friday. It is followed by 1.2170, the February high, and then by 1.2190. 

Support is at 1.2080, where the 100 SMA hits the price. It is followed by 1.2055 and 1.2020. 

EUR/USD Price Forecast 2021: Euro-dollar long-term bullish breakout points to 1.2750

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD stabilizes after US retail sales smash estimates

EUR/USD has bounced off its lows but remains below 1.20 after US retail sales smashed estimates with a 9.8% leap. Moreover, jobless claims tumbled to 576,000. Markets are digesting the big bulk of data.


GBP/USD rises toward 1.38 ahead of US data, Brexit meeting

GBP/USD is edging up toward 1.38, reversing its previous falls in tense trading ahead of all-important US retail sales. A Brexit-related meeting on Northern Ireland is also eyed. 


ETH seizes the spotlight as BTC and XRP contemplate retracement

Bitcoin price shows a correction in play after the MRI flashed a red ‘one’ cycle top signal. Ethereum shows a strong trend continuation while the rest of the market experiences a minor pullback. 

Read more

XAU/USD jumps above $1,760 amid slumping US T-bond yields

Gold extended its daily rally beyond $1,760 on Thursday. 10-year US Treasury bond yield is down more than 4% on the day. US Dollar Index falls into the negative territory below 91.60.

Gold News

Breaking: Citi (C) beats on EPS and revenue, investment banking booms!

Citigroup (NYSE:C) reports Q1 2021 earnings showing strong growth in investment banking following on from Goldman smashing it on Wednesday. Citi shares are trading $74.20 in pre-market up nearly 2%.

Read more