EUR/USD Price Forecast: Resumes downside after failing to hold above 200-day EMA
- EUR/USD trades marginally lower around 1.1520 as the US Dollar remains firm amid Middle East conflicts.
- Peace mediators dismiss Trump’s claim that the 10-day halt to attacks on Iranian energy plants was ordered as per Tehran’s request.
- ECB’s Lagarde warns of persistent energy supply risks due to significant damage to Gulf energy infrastructure.
The EUR/USD pair trades subduedly around 1.1520 during the European trading session on Friday. The major currency pair faces slight selling pressure as the US Dollar (USD) trades firmly with hopes of a de-escalation in the Middle East war easing, which involves the United States (US), Israel, and Iran.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% higher to near 100.00.
Investors turn doubtful over Mideast optimism amid the conflicting statements from peace mediators on US President Donald Trump’s claim that he ordered a pause on planned military strikes on Iran’s power plans as per Tehran’s request.
According to the Wall Street Journal (WSJ), peace talks mediators dismissed claims that Iran had requested a 10-day pause on strikes on its energy plants.
On the Euro (EUR) front, the major currency is expected to remain under pressure amid fears of persistent energy supply disruption in the wake of damage to Gulf energy infrastructure amid the war.
European Central Bank (ECB) President Christine Lagarde said in an interview with the Economist that the negative energy shock to the world economy from the Mideast war would be larger than current projections, as too much energy infrastructure has been damaged.
EUR/USD technical analysis
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EUR/USD trades lower at around 1.1520 as of writing. The pair holds just above the 200-day EMA near 1.1540 while extending a sequence of lower highs below the 20-day EMA around 1.1590, keeping the near-term bias modestly bearish within a broader sideways context.
The 14-day Relative Strength Index (RSI) struggles to hold its recovery move into the 40.00-60.00 zone, signifying heavy selling pressure at higher levels.
Immediate resistance emerges at the 20-day EMA around 1.1590, with a daily close above this barrier needed to ease bearish pressure and open a move toward 1.1690. A stronger recovery would then target the 1.1810/1.1850 area, where prior highs cluster and the recent breakdown began. On the downside, initial support is located at 1.1500, guarding the late pullback low at 1.1415. A decisive break below 1.1415 would confirm a continuation of the downswing and expose the next support zone closer to 1.1350, where longer-term buyers would be expected to re-emerge.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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