EUR/USD Price Forecast: Gains ground to near 1.1600, bullish vibe prevails above 100-day SMA
- EUR/USD gathers strength to near 1.1590 in Monday’s early European session.
- Fed’s Warsh signalled that further tightening may be needed to curb price pressure.
- The first upside barrier emerges at 1.1677; the initial support level is seen at 1.1570.
The EUR/USD pair trades in positive territory around 1.1590 during the early European trading hours on Monday. However, the potential upside for the major pair might be limited as traders ramped up bets on a rate hike after hawkish remarks by Federal Reserve (Fed) Chair Kevin Warsh.
Fed Chairman said on Friday at the Jackson Hole economic symposium that the US central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%. His hawkish comments have fuelled expectations of a September rate hike, supporting the US Dollar (USD) against the Euro (EUR).
Traders brace for the preliminary reading of Consumer Price Index (CPI) inflation data from Germany, which will be published later on Monday. Any signs of hotter inflation in Germany could lift the shared currency in the near term.
Dollar sentiment firms as Fed repricing follows Warsh’s hawkish tone
Strategists at Commerzbank highlight that “the main theme on Friday was the hawkish repricing of Fed expectations” in the wake of Fed Chair Kevin Warsh’s Jackson Hole speech. They note that Warsh warned inflation is “not meaningfully slowing” and reaffirmed that the Fed’s 2% inflation target is “firm and fixed,” while stressing that policymakers have “work to do” if they cannot be confident that underlying inflation is returning toward the target.
Warsh flags unfinished inflation fight, keeps Dollar bulls alert
Fed Chair Warsh delivered a notably more hawkish-leaning tone, with the FXS Speechtracker score at 7.4 versus a 6.5 historical average, underscoring heightened concern about price stability despite solid growth and stable labor markets. The insistence that the Fed must be confident underlying inflation is moving to objective or “we have work to do,” combined with comments that financial conditions are not restrictive and credit markets show few signs of policy restraint, points to a bias toward further tightening or a prolonged restrictive stance even as headline inflation data have improved but underlying trends are judged largely unchanged. Warsh’s emphasis that the Fed’s 2% PCE target is “firm and fixed” and that the predominant focus should be on prices reinforces a message that the inflation battle is not yet convincingly won, a backdrop that tends to support the Dollar on dips.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated 129.70, signaling that the aggregate policy tone remains firmly in hawkish territory despite the July decision to wait. The combination of a high index level and an above-baseline FXS Speechtracker score suggests that markets will continue to price a vigilant Fed stance, with the Dollar likely to stay underpinned as long as inflation progress is viewed as incomplete.
Technical Analysis: EUR/USD is well-supported above the key 100-day SMA
In the daily chart, EUR/USD holds a mildly bullish near-term tone as spot remains above the 100-day simple moving average (SMA), while pressing just under the 20-day Bollinger SMA, which acts as an immediate pivot. The Relative Strength Index (14) at 52.8 sits slightly above its neutral line, hinting that buyers retain a modest advantage without reaching overbought conditions.
On the topside, initial resistance is aligned at the August 26 high of 1.1677. A stronger barrier emerges at the upper Bollinger band around 1.1710, en route to the May 8 high of 1.1788.
On the downside, the 100-day SMA at 1.1570 offers first support, followed by the August 13 low of 1.1511. A more distant Bollinger lower band level is located near 1.1480, where a deeper pullback would likely encounter firmer buying interest.
(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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