EUR/USD Price Forecast: Next on tap comes 1.0600 and beyond

The Euro (EUR) added to the optimism seen in the latter part of last week and climbed to fresh multi-week highs near 1.0530 in quite a positive start to the new trading week.

The continuation of the uptrend coincides with renewed selling pressure on the US Dollar (USD), forcing the US Dollar Index (DXY) to reach new lows near the key 107.00 support amid a widespread decline in US yields. 

Meanwhile, headlines tied to former President Trump, particularly speculation about potential trade tariffs and their broader implications, continued to do the rounds among investors in a week where interest rate decisions by both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to dominate the FX galaxy.

A weak Greenback amid data and Fed speculation

The recent softness in the US Dollar can largely be attributed to disappointing economic data and dovish commentary from Federal Reserve (Fed) officials. In his latest comments, Federal Open Market Committee (FOMC) Governor Christopher Waller hinted that additional rate cuts might be considered if economic conditions deteriorate. This cautious tone has kept investors on edge ahead of the Fed’s upcoming meeting on January 28–29. 

The CME Group’s FedWatch Tool suggests that markets have fully priced in a decision to hold rates steady next week. 

Central banks hold the spotlight 

Monetary policy remains a key driver of market sentiment. In the US, a strong December jobs report (+256,000 Nonfarm Payrolls) initially eased concerns about the economy, with market participants now expecting the Fed to ease rates by around 50 basis points in 2025. 

In its December meeting, the Fed lowered interest rates to a range of 4.25%–4.50% while signaling a measured outlook for the coming year. Fed Chair Jerome Powell emphasized the importance of returning inflation to the 2% target, acknowledging that inflation remains stubbornly high as the labor market shows signs of cooling. 

Across the Atlantic, the European Central Bank (ECB) appears poised for further rate cuts, with next week’s decision likely confirming this trajectory. ECB President Christine Lagarde and other policymakers have emphasized a gradual approach to avoid undershooting the 2% inflation target or exacerbating the Euro’s recent weakness. 

Markets increasingly anticipate more ECB rate cuts, especially following Trump’s decision to hold off on imposing trade tariffs on the eurozone, which would have further pressured the bloc’s economy. 

Trade tensions add to uncertainty 

Uncertainty surrounding potential US trade tariffs continues to cloud the outlook for EUR/USD. Should tariffs drive US inflation higher, the Fed may be forced to adopt a more hawkish stance, strengthening the Dollar and pressuring the Euro further. This scenario could bring the psychologically critical parity level back into focus. 

Technical outlook for EUR/USD 

EUR/USD has immediate support at 1.0176, the year-to-date low set on January 13, with a key level at 1.0000 below that. On the upside, resistance stands at the 2025 high of 1.0532 (January 27), followed by the December 2024 peak of 1.0629, and the provisional 100-day SMA at 1.0685.

For now, the broader bearish trend remains intact as long as the pair trades below the 200-day SMA at 1.0770. 

Short-term indicators paint a mixed picture. The RSI hovers around 60, suggesting some bullish bias, while the ADX, dipping near 26, signals waning trend strength. 

EUR/USD daily chart

Challenges ahead for the Euro 

The Euro faces significant headwinds, including the persistent strength of the US Dollar, diverging central bank policies, and lingering economic challenges within the eurozone. Germany’s growth struggles and broader political uncertainties add to the Euro’s woes. While the single currency may experience short-term recoveries, sustained gains appear difficult against the backdrop of these structural issues.