EUR/USD Price Forecast: Remains capped below 1.0900 amid the overbought condition
- EUR/USD weakens to around 1.0830 in Monday’s early European, down 0.15% on the day.
- The positive bias of the pair prevails above the 100-day EMA, but the overbought RSI condition might cap its upside.
- The immediate resistance level emerges at 1.0900; the first downside target to watch is 1.0712.
The EUR/USD pair loses momentum to around 1.0835 during the early European session on Monday. The concerns over a global trade war exert some selling pressure on riskier assets like the Euro (EUR). Investors brace for the German Industrial Production for January and Eurozone Sentix Investor Confidence for fresh impetus.
According to the daily chart, the constructive outlook of EUR/USD remains intact as the major pair holds above the key 100-day Exponential Moving Averages (EMA). However, the 14-day Relative Strength Index (RSI) stands above the midline near 71.30, indicating the overbought RSI condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term EUR/USD appreciation.
The 1.0900 psychological level acts as an immediate resistance level for the major pair. A decisive break above this level could see a rally to 1.0936, a high of November 5, 2024. The crucial upside barrier emerges at 1.1000, the round figure.
On the flip side, the initial support level is located at 1.0712, the low of November 7, 2024. A breach of this level could expose 1.0544, the 100-day EMA. Further south, the next contention level to watch is 1.0360, the low of February 28.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 19 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.