The EUR/USD currency pair has been struggling recently, with the Euro attempting to rally and break above the 1.04 level on January 8, 2025, but quickly retracing. This shows signs of weakness and suggests that any short-term appreciation of the Euro against the US dollar might be fleeting. The European economy remains weak, while the US economy continues to show robust performance.
This is further complicated by strong inflationary pressures in the US, leading to a strengthening of the US dollar against many major currencies, including the Euro. In fact, the US dollar is currently viewed by many analysts as the strongest currency in the world, adding further weight to this trend. In the near term, parity between the Euro and the US dollar appears likely. Market watchers should anticipate some noise and potential volatility, particularly around important economic data releases, such as the upcoming jobs report on Friday.
Key resistance levels to watch if the Euro attempts another rally include the 1.05 level, the 50-day EMA, and the 1.06 level. These may present opportunities for bears to short the EUR/USD pair again, aiming to capitalize on the broader trend of dollar strength. Christopher Lewis, a seasoned forex trader with over 20 years of market experience, emphasizes a longer-term trading style and prefers technical analysis methods to inform his trades.
He primarily focuses on equity indices, commodities, and forex markets. The current economic climate suggests that the Euro will continue to struggle against the dominant US dollar, with parity being a plausible short-term target. Traders should remain cautious and look for signs of market exhaustion at key levels to inform their strategies.
EUR/USD has dropped to near 1.0300 following hints from the Federal Open Market Committee (FOMC) minutes about a slowdown in US inflation progress towards the Federal Reserve’s target of 2%. The USD Index is on track to revisit the two-year high of 109.53 ahead of the US Nonfarm Payroll (NFP) data due on Friday.
eur weakness amid usd strength
Atlanta Federal Reserve Bank President Raphael Bostic warned that price pressures will likely face obstacles on the path to the central bank’s 2% target. He emphasized a cautious policy approach, noting, “We don’t want to overreact to any one data point in an environment where things may bounce around considerably.”
Looking ahead, the EUR/USD will be influenced by President-elect Donald Trump’s plan to declare a national economic emergency to justify possible increases in import tariffs on the nation’s allies and adversaries. Additionally, investors will focus on the NFP data release for December, expected on Friday, which will influence market expectations about the timing of the Fed’s first interest rate cut this year.
The European Central Bank (ECB) is expected to reach the neutral rate by summer, around 2%. ECB policymaker and Governor of the Bank of France, Francois Villeroy, stated that price pressures are expected to increase in December, with interest rates continuing to move towards the neutral rate without a slowdown in the pace if upcoming data confirms that price pressures will not persist. EUR/USD is trading near the key support level from September 2022’s high of 1.0200 on a weekly timeframe.
The currency pair’s sentiment is broadly bearish, with the 20-week Exponential Moving Average (EMA) at 1.0627 declining. The 14-week Relative Strength Index (RSI) has slid to near 30.00, indicating strong downside momentum. However, a slight recovery cannot be ruled out as the momentum oscillator has turned oversold.
The upcoming Nonfarm Payrolls (NFP) data release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses. The next release is scheduled for January 10, 2025. The US monthly jobs report is a critical economic indicator for forex traders, closely tied to the overall performance of the economy and monitored by policymakers.
In conclusion, the EUR/USD is under pressure due to USD strength and cautious policy approaches from both the Federal Reserve and the ECB. Market participants should keep an eye on upcoming economic data, especially the NFP report, to gauge future currency movements.