EUR/USD Price Forecast: Holds below 1.1200, bearish tone prevails amid oversold conditions
- EUR/USD softens to around 1.1195 in Thursday’s early European session.
- The pair retains a negative outlook below the 100-day SMA; a temporary rebound cannot be ruled out amid oversold conditions.
- The immediate resistance level emerges at 1.1276; the initial support level to watch is 1.1145.
The EUR/USD pair loses ground to near 1.1195 during the early European trading hours on Thursday. France's fiscal concerns continue to drag the Euro (EUR) lower against the US Dollar (USD). The US weekly Initial Jobless Claims report and the Fedspeak will be in the spotlight later on Thursday.
France has seen its borrowing costs climbed in the current global bond rout, prompting a selloff in the shared currency as traders are worried its fragile public finances risk spilling over to the rest of Europe.
"France is very big. If we are discussing a systemic problem with France, we are discussing a systemic problem for Europe. I would hope and expect that we don't get to the point of having that discussion," said Ubide, head of Economic Research for Fixed Income & Macro at Citadel.
Across the pond, the Minutes from the last Federal Reserve (Fed) meeting showed that policymakers were united in backing their September hike, and most officials assessed that another hike would be appropriate by year-end.
“With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” the Minutes stated.
Euro sentiment sours as political risks and yield spreads drive EUR/USD lower
Strategists at ABN Amro note that shifting rate dynamics have been a key driver of recent Euro weakness, with “changes in interest rate spreads [having] encouraged speculative investors to take short euro and long dollar positions.” While positioning data underscore this move, the bank stresses that “other factors have also affected the currency.”
According to ABN Amro, the Euro “tends to weaken when government bond yields in a major eurozone country, or in several countries, rise sharply because of political and/or fiscal concerns.” Episodes of stress have brought “fear of contagion,” which “impacts the currency as well.” In practice, “periods of fiscal and political uncertainty in the eurozone often coincide with speculators holding net short euro positions and a lower EUR/USD,” a pattern the bank illustrates with “the recent relationship between the ten-year French-German government bond spread and the euro.”
The bank recalls that “in last week’s FX Weekly, we said that political uncertainty would weigh on the euro towards the end of this year and in the first quarter of next year,” but concedes that “this pressure has emerged sooner than we expected.” Even so, ABN Amro argues that, for EUR/USD, “sentiment may remain negative in the near term, but we do not expect the sell-off to continue,” and therefore “keep our end-2026 forecast unchanged at 1.15.”
Technical Analysis: EUR/USD keeps a bearish vibe amid oversold conditions
In the daily chart, EUR/USD extends its slide below key trend metrics and keeping the near-term bias firmly bearish. Spot holds under the 100-day simple moving average (SMA) and even below the Bollinger middle band, underscoring a market that remains capped by overhead supply. The latest Bollinger lower band offers the nearest underlying cushion, while the Relative Strength Index (RSI) at 24.4 sits in oversold territory, suggesting that while bears remain in control, short-term downside could start to lose momentum after recent aggressive selling.
On the topside, initial resistance is located at the October 6 high of 1.1276, en route to the Bollinger middle band around 1.1380, and the 100-day SMA at 1.1495. A desicive break above this level could see a rally to the upper boundary of Bollinger band near 1.1620.
On the downside, the Bollinger lower band at 1.1145 is the first meaningful support level. A clear break below this zone would open the way to the May 21, 2025 low of 1.1050, followed by the 1.1000 psychological level. The next contention level to watch is the May 12 low, 2025 of 1.0951.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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