EUR/USD Price Forecast: Looks to build on momentum beyond 1.1735 confluence

EUR/USD gains some follow-through positive traction amid a broadly weaker USD.
The divergent Fed-ECB outlooks favor bulls and back the case for additional gains.
The supportive fundamental backdrop also validates the near-term positive outlook.

Haresh Menghani FXStreet

The EUR/USD pair attracts fresh buyers near the 1.1710 area during the Asian session on Tuesday and builds on the previous day's solid bounce from the 1.1660 area, or a nearly four-week low. Spot prices currently trade around the 1.1735 region, up 0.10% for the day, and seem poised to climb further amid a supportive fundamental backdrop.

The US Dollar (USD) drifts lower for the second straight day and moves further away from its highest level since December 10, touched on Monday, amid dovish US Federal Reserve (Fed) expectations. Furthermore, bets that the European Central Bank (ECB) is done cutting rates seem to support the shared currency and act as a tailwind for the EUR/USD pair.

An intraday strength beyond the 1.1735 confluence – comprising the 100-hour Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the 1.1808-1.1660 fall – validates the positive outlook. Moreover, the Moving Average Convergence Divergence (MACD) has turned positive and edges higher, hinting at improving upside momentum.

Adding to this, the Relative Strength Index (RSI) at 59 supports further gains, with the 61.8% Fibo. retracement level, around mid-1.1700s, forming the next resistance. A push through these barriers would strengthen the corrective tone, whereas failure to clear them would leave EUR/USD vulnerable to renewed consolidation within the recent range.

(The technical analysis of this story was written with the help of an AI tool)

EUR/USD 1-hour chart

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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