EUR/USD Price Forecast: Holds gains above 1.1450, but remains technically bearish below 100-day SMA
- EUR/USD gains traction to near 1.1475 in Tuesday’s early European session.
- The negative tone of the pair remains intact below the 100-day SMA, with bearish RSI momentum.
- The initial support level is located at 1.1445; the first upside barrier emerges at 1.1545.
The EUR/USD pair trades in positive territory around 1.1475 during the early European session on Tuesday. The Euro (EUR) edges higher against the US Dollar (USD) amid improved risk sentiment as traders pinned their hopes on US-Iran talks. Federal Reserve (Fed) policymakers are scheduled to speak later on Tuesday, including John Williams, Philip Jefferson and Thomas Barkin.
Market participants await developments on potential US-Iran talks at the United Nations General Assembly this week. Washington and Tehran exchanged threats on Sunday, though US President Donald Trump said he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to be in New York this week for the UN General Assembly.
On the other hand, political instability in Germany could undermine the shared currency in the near term. The far-right Alternative for Germany took first place in state elections in northeastern Germany on Sunday, with Chancellor Friedrich Merz's conservative party suffering its worst regional election defeat in postwar Germany, leaving him clinging to power.
Euro confidence tested as German political risks rise
Analysts at MUFG highlight rising political risk in Germany after Chancellor Merz’s CDU suffered a historic setback in the north-eastern state of Mecklenburg-Vorpommern, where the party “won just 4.9% of the vote … the party’s worst result in any state election in Germany’s postwar history.” They argue that “the latest results will embolden CDU critics who blame Chancellor Merz’s low personal ratings to seek a change at the top of the party,” adding that, “at the same time, the latest political and fiscal developments in European could contribute to undermining confidence in the euro in the near-term.”
Fed’s Musalem leans more hawkish, backing earlier incremental rate hikes
The FXS Speechtracker score of 8/10 marks a modest hawkish tilt relative to the historical average of 7.4/10, underscoring stronger-than-usual emphasis on further policy restraint. Musalem’s warning that without additional tightening inflation is likely to remain substantially above the 2% target in 18 months, alongside the view that interest rates “likely need to rise further” despite a labor market around full employment and broad-based commodity shocks, signals a clear preference for earlier, incremental hikes to prevent entrenched price increases near 3%. The characterization of inflation as still “too high” even after stripping out supply factors, and business contacts planning price rises closer to 3%, reinforces a bias toward continued restrictive policy that is supportive for the Dollar on a relative rates narrative.
The FXS Fed Sentiment Index rose by 0.42 points to 149.96, keeping overall Fed tone firmly in hawkish territory well above the neutral 100 threshold. This incremental uptick, aligned with the stronger FXS Speechtracker reading, confirms that Musalem’s remarks marginally intensify expectations for sustained higher policy rates, a backdrop that tends to underpin the Dollar versus lower-yielding peers.
Technical Analysis: EUR/USD retains a negative tone below the 100-day SMA
In the daily chart, EUR/USD keeps a bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger middle band. The pair is sliding along the lower half of the Bollinger envelope, while the 14-day Relative Strength Index at 36 stays just above oversold territory, which suggests selling pressure is still dominant even if downside momentum is not extreme.
On the downside, immediate support is offered by the Bollinger lower band near 1.1445, where sellers could start to take some profit on stretched intraday moves. A breach of this level could expose the July 14 low of 1.1378, followed by the July 28 low of 1.1353.
On the topside, initial resistance appears at the 100-day SMA at 1.1545. Any follow-through buying above the mentioned level could pave the way to the Bollinger middle band at 1.1575, en route to the September 9 high of 1.1654, and then the Bollinger upper band up at 1.1700.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
What is the Euro?
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%).
What is the ECB and how does it impact the Euro?
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.
How does inflation data impact the value of the Euro?
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.
How does economic data influence the value of the Euro?
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.
How does the Trade Balance impact the Euro?
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.