Euro-to-Dollar Week Ahead Forecast: Lettin off Steam
- Written by: Gary Howes
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Image © Adobe Images
The Euro to Dollar exchange rate (EUR/USD) retains an uptrend, but could struggle to break new highs this week.
Our forecast for the next five days prefers some sideways action, ahead of a potential resumption of gains in the next couple of weeks.
Interestingly, last Friday's headlines covering Israel's attacks on Iran proved to have had a limited impact on the Euro-Dollar, and markets more broadly.
Sure, oil prices spiked, but they are off the highs again on Monday, which is contributing to a softer USD at the start of the new week.
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A look at the technical setup shows EUR/USD didn't break below the nine-day exponential moving average. Because the nine-day EMA is pointed higher, the short-term trend to the upside remains intact.
Last week, the pair hit a new multi-year high at 1.1630, and subsequent weakness has allowed the exchange rate to let off some steam.
Our preference in this Week Ahead Forecast is for a further paring of recent gains, allowing EUR/USD to make contact with the nine-day EMA and rising trend line again:
Above: EUIR/USD at daily intervals.
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From here, the recovery can extend to new highs.
Looking at the fundamental backdrop, the Iran-Israel conflict has yet to leave its mark. If Friday's headlines covering the latest Middle East conflict failed to make a material market, we doubt the issue will matter too much in the coming days
Importantly, oil prices are softer on Monday, which confirms the broader market sees some scope for de-escalation.
"Risk aversion subsided overnight with dips in high beta FX and equities bought, reflecting confidence among investors that the crisis in the Middle East will be contained and higher oil prices are not permanent and will therefore not destabilise the global economy," says Kenneth Broux, a strategist at Société Générale.
If oil prices were to spike - say on Iranian attacks on shipping in the Strait of Hormuz - then USD could rise quite rapidly.
Also this week, we have the Federal Reserve, where rates will be left unchanged, but there should be enough said to allow markets to maintain bets for the next cut to come in September.
"Investors will pay close attention to the post-announcement statement and Q&A session for signals on the Fed’s near-term policy stance," says Ricardo Evangelista, Senior Analyst at ActivTrades. "Any shift in expectations, which currently point to a 25 basis point cut in September, followed by a similar move before year-end, could influence the performance of the US dollar."
We note that interest rate expectations have been a secondary concern for markets in 2025, meaning that any post-Fed spikes would likely be rapidly faded, allowing the USD to continue it steady decline in value.
