EUR/USD Price Forecast: Downside has further legs to go
- EUR/USD dropped to fresh multi-week lows in the 1.1430-1.1420 band.
- The US Dollar kept the bid tone unchallenged in fresh two-month tops.
- The Federal Reserve left its interest rates the same, as anticipated.
EUR/USD tumbled into the 1.1430–1.1420 zone on Wednesday, marking multi‑week lows as broad‑based US Dollar (USD) strength drove the US Dollar Index well past the 99.00 barrier.
Trade deals and data fuel Dollar optimism
In recent days, a new US–EU framework deal injected fresh confidence into the greenback. Under the agreement, most EU exports to the US will face a 15% tariff—up from April’s 10% but well below the initially threatened 30%—while critical sectors like aircraft, semiconductors, chemicals, and select farm goods escape duties altogether. Steel and aluminium tariffs remain at 50%.
In return, the EU has pledged to purchase $750 billion in US energy, acquire “vast amounts” of American military equipment, and boost investment in the US by over $600 billion.
Collaborating with the ongoing rally in the Greenback emerged auspicious results from the ADP report (+104K jobs) and flash GDP readings, showing the economy is expected to have expanded more than estimated by 3.0% YoY in the April-June period.
But… European backlash clouds the accord
Despite the trade headlines, not everyone in Europe is celebrating. Germany’s Chancellor Friedrich Merz warned that higher tariffs will weigh heavily on the economy, and France’s President Emmanuel Macron lamented the deal as “a dark day” for Europe. Their criticism underscores lingering concerns about the pact’s long‑term impact.
Fed and ECB both hold steady
Central banks on both sides of the Atlantic remained on pause.
The Federal Reserve held interest rates steady on Wednesday in a split decision that provided little indication of when borrowing costs might be reduced and drew dissent from two of the bank's governors (Christopher Waller and Michelle Bowman), both of whom are Trump appointees who agree that monetary policy is too tight.
Meanwhile, European Central Bank (ECB) President Christine Lagarde struck an upbeat tone after keeping rates unchanged, describing eurozone growth as “solid, if not a little bit better.” Traders have since pared back bets on an autumn rate cut, pushing the odds of easing into next spring.
Speculators shuffle positions
CFTC data through July 22 show speculators dialling back their net long EUR positions to around 125.5K contracts—their smallest bullish stance in two weeks—while institutional traders reduced their net shorts to roughly 177.7K contracts. Additionally, open interest has climbed for a fifth consecutive week, nearing 843.5K contracts and highlighting robust market engagement.
Key technical levels
To reclaim lost ground, EUR/USD must clear its 2025 high of 1.1830 (July 1) and then eye the September 2021 peak of 1.1909 (September 3), with the symbolic 1.2000 level looming beyond.
On the flip side, near‑term support holds at the July base of 1.1425 (July 30), followed by the weekly trough at 1.1445 (June 19) and the interim 100‑day SMA at 1.1350.
Momentum indicators remain mixed: the Relative Strength Index (RSI) has dipped toward 37—suggesting further downside is possible—while the Average Directional Index (ADX) near 22 signals that no clear trend has yet cemented.
EUR/USD daily chart
What’s in store for EUR?
Absent a decisive shift in US monetary policy or a thaw in trade tensions, EUR/USD looks set to tread water. Only a genuinely dovish pivot from the Fed or signs of trade‑war détente are likely to spark a meaningful euro rebound in the near term.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
