EUR/USD Price Forecast: Bounces back to near 1.1730 as 20-day EMA remains supportive
- EUR/USD turns positive around 1.1730 as the US Dollar gives back early gains.
- Iran prepares to reopen the Hormuz if the US lifts the blockade on Iranian sea ports.
- Investors await the Fed-ECB monetary policy announcements.
The EUR/USD pair claws back its early losses and turns positive around 1.1730 during the Asian trading session on Monday. The major currency pair gains as the US Dollar (USD) turns upside down.
During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.06% lower to near 98.45. The USD Index opened significantly higher around 99.35 as the United States (US) canceled a visit to Islamabad for another round of peace talks with Iran, despite Iran's foreign minister Seyed Abbas Araghchi visiting Pakistan to resume talks.
Meanwhile, Iran has offered a new proposal to the US to reopen the Strait of Hormuz and end the war that includes putting off nuclear negotiations, according to Axios, Bloomberg reported. The report shows that nuclear talks would come later, only after a US blockade of the Strait of Hormuz were lifted. This indicated Iran’s readiness to end the almost two-month-long conflicts in the Middle East.
This week, investors brace for high volatility in the major currency pair as both the Federal Reserve (Fed) and the European Central Bank (ECB) are scheduled to announce monetary policies on Wednesday and Thursday, respectively.
EUR/USD technical analysis
EUR/USD trades marginally higher at around 1.1730 as of writing. The pair holds a constructive near-term bias as it trades above the 20-day exponential moving average (EMA) at 1.1696, suggesting buyers retain control after reclaiming this dynamic support.
The Relative Strength Index (RSI) at 54.9 sits moderately above the 50 line, hinting at firm but not overstretched bullish momentum as price pushes deeper into the upper half of the recent Fibonacci retracement grid.
On the topside, immediate resistance emerges at the 50.0% Fibonacci retracement at 1.1749; a sustained break higher would expose the 61.8% retracement at 1.1828, followed by 1.1941 and the cycle high region near 1.2085. On the downside, initial support is provided by the 20-day EMA at 1.1696, with additional protection at the 38.2% Fibonacci level at 1.1670; a deeper pullback would bring the 23.6% retracement at 1.1572 into view ahead of the structural floor around 1.1413.
(The technical analysis of this story was written with the help of an AI tool.)
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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