EUR/USD Forecast: Euro could face next resistance at 1.0500
- EUR/USD climbed to a multi-week high above 1.0450 on Friday.
- Markets await preliminary January Manufacturing and Services PMI reports.
- The pair's near-term technical outlook points to a strengthening buyer interest.
Following Thursday's indecisive action, EUR/USD gathered bullish momentum and touched its highest level since December 18 at 1.0470 in the early European session on Friday. Although the pair retreated to the 1.0450 area, the technical outlook suggests that the bullish bias remains intact.
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 | -1.74% | -1.78% | -0.56% | -0.92% | -2.04% | -2.14% | -0.85% | |
| EUR | 1.74% | -0.10% | 1.12% | 0.73% | -0.24% | -0.52% | 0.77% | |
| GBP | 1.78% | 0.10% | 1.16% | 0.82% | -0.14% | -0.43% | 0.87% | |
| JPY | 0.56% | -1.12% | -1.16% | -0.37% | -1.44% | -1.69% | -0.49% | |
| CAD | 0.92% | -0.73% | -0.82% | 0.37% | -1.06% | -1.24% | 0.05% | |
| AUD | 2.04% | 0.24% | 0.14% | 1.44% | 1.06% | -0.37% | 0.96% | |
| NZD | 2.14% | 0.52% | 0.43% | 1.69% | 1.24% | 0.37% | 1.12% | |
| CHF | 0.85% | -0.77% | -0.87% | 0.49% | -0.05% | -0.96% | -1.12% |
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).
In the early trading hours of the Asian session on Friday, US President Donald Trump said in an interview that he would rather not have to use tariffs on China. This comment allowed market mood to improve and made it difficult for the US Dollar (USD) to find demand.
While speaking at the World Economic Forum late Thursday, however, Trump said that he will do something about the trade deficit with the EU, adding that EU tariffs were making it very difficult for them to bring products into Europe. In case Trump hints at ramping up tariffs on European imports, the Euro could struggle to preserve its strength.
On Friday, preliminary January HCOB Manufacturing and Services PMI report for Germany and the Eurozone will be watched closely by market participants. The market reaction to these data is likely to be straightforward, with better-than-expected prints supporting the Euro and vice versa.
In the second half of the day, S&P Global PMI data will be featured in the US economic calendar. In case the Composite PMI unexpectedly drops below 50 and points to a contraction in the private sector's economic activity, the USD could come under renewed selling pressure heading into the weekend.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 70, suggesting that EUR/USD has more room on the upside before turning technically overbought in the near term.
On the upside, 1.0500-1.0510 (round level, Fibonacci 78.6% retracement of the latest uptrend) aligns as next resistance before 1.0540 (static level) and 1.0600 (beginning point of the downtrend).
In case EUR/USD retreats below 1.0440 (Fibonacci 61.8% retracement, 50-day SMA) and starts using this level as resistance, buyers could be discouraged. In this scenario, 1.0400-1.0390 (Fibonacci 50% retracement, 200-period SMA) and 1.0350 (Fibonacci 38.2% retracement) could be seen as next support levels.
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.
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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.
