Title: Euro Forecast: Breakout Against USD and JPY, Recovery Against GBP
By Matt Weller, CFA, CMT | Source: Forex.com
The euro has seen notable movement across multiple currency pairs, with particular attention on EUR/USD, EUR/JPY, and EUR/GBP. Recent price action indicates potential breakouts and trend reversals, providing key technical insights for traders. This article reviews the current state of the euro, incorporating technical setups, macroeconomic influences, and fundamental drivers contributing to these emerging trends.
EUR/USD: Breakout Confirms Bullish Bias
EUR/USD has broken above a persistent resistance zone, signaling potential for continued upside. After consolidating in a narrow range for weeks, the pair finally gained enough bullish momentum to break higher, driven in part by U.S. dollar weakness and stronger-than-expected Eurozone economic data.
Key technical highlights:
– EUR/USD had been trading between approximately 1.0700 and 1.0900 throughout late Q2 2024.
– The pair recently pushed through the 1.0900 resistance level, reaching new monthly highs.
– The bullish breakout coinccedes with a broader weakening of the U.S. dollar, as markets rethink the trajectory of Federal Reserve monetary policy.
Supporting Fundamentals:
Several fundamental developments have supported the euro in recent weeks:
– European inflation data surprised to the upside, casting doubt on the European Central Bank’s (ECB) ability to continue easing aggressively.
– Meanwhile, U.S. inflation appears to be gradually receding, with core Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) prints trending lower year-over-year.
– Diverging rate expectations have put pressure on the dollar, as traders scale back forecasts for another Fed rate hike this year.
– Stronger-than-expected PMI data from Germany and France has also lent support to the euro, suggesting that economic activity in the Eurozone might be recovering faster than anticipated.
Technical Outlook:
If the bullish breakout remains intact, the next directional targets for EUR/USD are as follows:
– Immediate resistance lies around 1.1000, a psychological round number and previous swing high from early 2024.
– A clean breach above 1.1000 could see the pair targeting 1.1090 to 1.1150 in the medium term.
– On the downside, a retracement back toward 1.0880–1.0900 would need to hold to preserve bullish momentum.
Traders will be closely watching for a daily close above the 1.1000 threshold to reinforce the prevailing bullish bias.
EUR/JPY: Bullish Breakout Reinforced
EUR/JPY has also exhibited a breakout, driven primarily by diverging monetary paths between the ECB and the Bank of Japan (BOJ). The yen remains under pressure amid consistently dovish rhetoric from the BOJ, which continues to pursue a stimulative monetary stance despite rising inflation in Japan.
Chart Observations:
– The pair broke through ascending triangle resistance near the 169.00–169.50 zone, confirming bullish continuation.
– EUR/JPY is now trading near multi-year highs not seen since before the Global Financial Crisis.
– Momentum indicators such as RSI and MACD confirm bullish strength, with minimal signs of overextension.
Monetary Policy Differentials:
– The BOJ remains one of the most dovish central banks, intervening only verbally in attempts to stabilize the yen’s decline.
– Despite Japan’s inflation creeping above its targeted 2 percent range, the central bank has emphasized patience in policy normalization.
– In contrast, the ECB has reached a plateau on rate hikes but is unlikely to implement significant cuts in the near term, offering relative yield support for the euro.
Potential upside targets:
– Next key resistance is located near the 172.00 level, corresponding to historical pivot points.
– A confirmed push past that barrier could see the pair targeting 174.00 area in the coming weeks.
– On the downside
Read more on EUR/USD trading.