EUR/USD Price Forecast: Testing 11-month lows at 1.3991 amid broad US Dollar strength
- EUR/USD has depreciated nearly 0.7% so far this week to test 11-month lows at 1.3991.
- Higher US Treasury yields and uncertainty about the US-Iran peace deal are boosting the Greenback this week.
- Preliminary Eurozone PMI data beat expectations in June, but German figures disappointed.
The Euro (EUR) extends losses on Tuesday, with the US Dollar (USD) buoyed by rising hopes of Federal Reserve (Fed) tightening later this year and a cautious market mood, amid the uncertainty surrounding the US-Iran trade deal. The pair has pierced the 1.1400 area for the first time this year and is testing July 2025 lows at 1.1391 at the time of writing, after falling nearly 0.7% over the last two days.
The US Dollar is drawing support from higher Treasury yields, as traders brace for a Federal Reserve (Fed) rate hike in the second half of the year. The CME Group’s Fed Watch Tool shows a 70% chance of a hike in September, up from less than 30% a week ago, and is almost fully pricing at least a quarter-point hike before the end of the year.
Beyond that, the progress on the US peace process remains uncertain, with key issues like the reopening of the Strait of Hormuz in the air, let alone the controversial nuclear program. Investors have not popped the champagne yet.
In the Eurozone, preliminary HCOB Purchasing Manager’s Index data showed slightly above-expectations business activity, but the soft figures from Germany are keeping the enthusiasm about the region’s economic outlook subdued.
Technical Indicators: Euro sell-off starts to look overstretched
EUR/USD trades at 1.1392, extending its bearish stance, with Relative Strength Index (RSI) readings reaching oversold levels in most timeframes, which should act as a warning for sellers. The Moving Average Convergence Divergence (MACD) line in the daily chart is tracking below zero, suggesting persistent downside pressure with only tentative scope for corrective rebounds.
Below 1.1391, the next downside targets are the 261.8% Fibonacci retracement of the mid-June rally, at 1.1328, and the late May 2025 low, in the 1.1220 area.
On the topside, initial resistance emerges at Monday's high, near 1.1475, and the June 8 and 11 lows, in the 1.1500 area. An unlikely move above here would expose the June 16 and 17 highs, in the 1.1620 area.
(The technical analysis of this story was written with the help of an AI tool.)
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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