EUR/USD Price Forecast: RSI rebounds but bearish bias remains below 1.1600
- EUR/USD weakens as Middle East tensions keep the US Dollar supported.
- Technically, EUR/USD remains below key moving averages, reinforcing a bearish bias.
- Momentum indicators show a cautious recovery within a broader bearish trend.
The Euro (EUR) trades under pressure against the US Dollar (USD) on Tuesday, as heightened geopolitical risks surrounding the US-Israel war with Iran continue to underpin demand for the Greenback. At the time of writing, EUR/USD is trading around 1.1573, reversing most of the previous day’s gains and down nearly 0.35% on the day.
Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 99.50, rebounding after briefly slipping below the 99.00 mark on Monday.
The Euro has remained under pressure since tensions in the Middle East escalated, weighed down by rising Oil prices and their negative impact on the Eurozone economy, given that the bloc is a net energy importer.
Higher energy costs are raising concerns about slower growth and persistent inflation across the region. Even rising expectations of European Central Bank (ECB) rate hikes have failed to provide meaningful support to the Euro.
In contrast, the US Dollar continues to benefit from multiple supportive factors. The United States is a net oil exporter, making it less affected by higher energy prices.
At the same time, Oil is priced in US Dollars, which increases global demand for the Greenback as prices rise. Additionally, during periods of uncertainty, investors also prefer the US Dollar for safety and liquidity, reinforcing its role as the world’s primary reserve currency. Further support comes from rising US Treasury yields, as markets have fully priced in the Federal Reserve’s rate outlook for this year.
From a technical standpoint, the daily chart shows that the near-term bias remains mildly bearish as sellers continue to defend the 1.1600 mark while the pair trades below the clustered 100- and 200-day Simple Moving Averages (SMAs) around 1.1670-1.1680, keeping the broader tone under downward pressure.
However, momentum indicators suggest selling pressure may be easing, with the Relative Strength Index (RSI) rebounding from near-oversold levels to around 45, but still holding below the midline. The Moving Average Convergence Divergence (MACD) indicator has turned slightly positive but remains close to the zero line, which suggests only tentative recovery interest within an overall soft backdrop.
On the upside, immediate resistance emerges at the 38.2% Fibonacci retracement of the 1.1411-1.1929 range at 1.1609, followed by the 50% retracement at 1.1670, where the 100- and 200-day SMAs converge, forming a strong resistance zone.
On the downside, immediate support is seen near the 23.6% Fibonacci retracement at 1.1530, followed by the recent swing low around 1.1410. A break below this level could expose further losses toward the 1.1350 region.
Euro FAQs
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%).
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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