Euro-to-Dollar Week Ahead Forecast: At the Trend Line

Image © Pound Sterling Live

We're at a pivotal technical moment for the Euro to Dollar exchange rate (EUR/USD).

Our latest Week Ahead Forecast for EUR/USD suggests that the Euro's ongoing retracement from 2025 highs is at risk of evolving into a deeper pullback.

The pair has now retraced all the way back to a solid trendline support, shown as the purple line in the chart below:

The chart explains that the trend of appreciation that has been in place since February has seen its ups and downs, but weakness has always been shallower than the previous impulse higher.

To be sure, a break below the annotated trend line doesn't mean the trend is over as it could mean a longer period of consolidation is underway ahead of an eventual reboot, requiring more patience from those that might be targeting a move to 1.20.

"I am confident the pair will head towards 1.20 later this year, suspect the peak will be around 1.25, in line with the 2018 and 2021 peaks, and I doubt we will see 1.30 for the foreseeable future," says Kit Juckes, FX Strategist at Société Générale.

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For now, there is some weakness evidenced by the chart, which also shows that EUR/USD has dipped below the nine-day exponential moving average (EMA), meaning we must anticipate further weakness in the coming days.

A retreat to the round numbered 1.16 graphical support is our preferred stance.

Underlying currents are also underpinning the view that the Euro can lose further ground from here.

Notably, the European Union is being lined up for a 30% basic tariff by U.S. President Donald Trump, who sent a letter to EU Commission President Ursula von der Leyen at the weekend, in which he signalled frustration over an inability to secure a deal in ongoing negotiatons.

The tariffs come into effect on August 01 unless a new trade accord is reached. If this is the case, the EU will likely announce countermeasures, and we have a genuine trade war on hand.

Sure, the experience of 2025 has proven that tariff stresses are bad for the Dollar, but it's difficult to argue that a 30% tariff on a lacklustre European economy is helpful.

At some point, the reality of the Euro's vulnerability to another export slowdown will become evident.

Another important observation to consider is, "the broad USD downtrend has stalled of late, and this may reflect a shift in the way investors perceive the U.S. economy and its asset markets," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

U.S. data is proving resilient and the AI supercycle is back in the forefront of investors' minds. This is outright supportive of the Dollar and raises the spectre of the 'U.S. exceptionalism' trade returning, or at least partly.

"We note that the latest USD consolidation takes place against the backdrop of very resilient US stocks and lofty UST yields as well as evidence that the US is inching closer towards deals with several of its trading partners, in a boost to its economic and fiscal outlook," says Marinov.

Above: S&P 500 roars higher.

Crédit Agricole notes that more recently, U.S. equities have outperformed other G10 stock markets in USD terms for the first time since "Liberation Day". "If sustained, this can become an important FX driver," says Marinov.

"While we have recently turned more constructive on EUR/USD in the near term, we doubt that there is huge scope for further EUR gains from current levels in 2025," he adds.

Turning to the calendar, the big event of the coming week falls on Tuesday with the release of U.S. inflation figures.

Here, traders will be looking for any evidence at all that tariffs, or anticipation of tariffs, are putting upside pressures on prices.

Should there be some signs of rising prices linked to the tariff channel, then U.S. bond yields could firm, offering the Dollar some support.

Likewise, a below-consensus print could light up U.S. stock markets as it would bring another Federal Reserve rate cut into the frame.

The attraction of a strengthening U.S. economy and rising stocks can only bolster the Dollar. So, in short, it's a potential win-win week for the Greenback.