Euro-to-Dollar Forecast to Hold its Ground in the Week Ahead

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The euro is resisting U.S. dollar strength better than most, which should allow it to trade in robust fashion this week.

The euro made small an incremental advances against the dollar last week, and Monday sees another climb, taking it above the nine-day exponential moving average (EMA) at 1.1630.

The advance signals that near-term momentum has turned to the upside and a steady move through the mid and late 1.16s is now on the cards.

Those looking to secure a stronger euro rate should reach out to our desk for a quick quote and discuss setting up an automatic order.

Although the euro is ambling higher, it's by no means trending higher in assertive fashion, and it's worth pointing out that the pair continues to trade in a multi-month consolidative band.

The lower end of that band extends to 1.1550 (we're not taking into consideration the July collapse to 1.14 as that was quickly corrected), while the upper end of the band is located at 1.1750, with temporary spikes to 1.18 and above being short lived.

We're therefore potentially in an upmove within this above band, meaning strength and weakness will have their limits.

Much of course depends on what the Federal Reserve does midweek. We know it will cut interest rates by 25 basis points, but we don't know what it thinks about another rate cut later in the year.

The rule of thumb is that any encouragement of further cuts will weigh on the dollar, and allow the EUR/USD to recover through 1.17.

Recent U.S. survey data confirms the employment situation is slowly deteriorating, and the Fed won't want to risk exacerbating this by keeping interest rates restrictive for too long.

This should ensure it keeps the prospects of further cuts alive.

However, should the Fed express caution about another cut in 2025, it will have the effect of weighing down on EUR/USD.

After all, the Fed is starved of official data owing to the government shutdown and will not want to signal any major policy shift if it feels it is flying blind.

Given this, we think that we are going to receive a very constrained Fed guidance as the Fed tries its best to keep a steady hand on the tiller until that official data starts flowing again.

It means that any post-Fed FX reactions are ultimately faded and we end the week sitting on a relatively unchanged setup, i.e. the euro-dollar is drifting higher in the multi-week band.

Also, keep an eye on Thursday's ECB decision, where no change in rates is expected. That the Fed is cutting and the ECB is standing pat should allow interest rates in the U.S. and Eurozone to converge a little further, which is playing supportive of EUR for now.

However, don't expect any major signals from the ECB, which should ensure we don't see any FX market fireworks on the day.