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EUR/USD Forecast: Hawkish ECB Bets Back Fresh Upside

The euro is finding renewed strength against the US dollar as markets increase bets on a more hawkish European Central Bank (ECB) policy path, with traders pricing in a higher likelihood of rate hikes in the coming months. This shift in expectations is providing fresh upside momentum for the EUR/USD currency pair, which has been trading in a range but now appears poised for a breakout.

Why Hawkish ECB Bets Are Supporting the Euro

The core driver behind the euro’s recent resilience is the market’s growing conviction that the ECB will maintain a tighter monetary policy stance compared to earlier expectations. Recent comments from several ECB policymakers have signaled a willingness to continue raising interest rates to combat persistent inflation in the eurozone, even as the region’s economic growth shows signs of slowing. This contrasts with the Federal Reserve, which is widely expected to pause its rate hiking cycle, creating a policy divergence that favors the euro.

According to money market pricing, the probability of a 25-basis-point rate hike at the ECB’s next meeting has risen sharply over the past week. This repricing has been fueled by stronger-than-expected inflation data from key eurozone economies, particularly Germany and France, which have shown that price pressures remain sticky. As a result, the yield differential between German and US government bonds has narrowed, making euro-denominated assets more attractive to investors.

Technical Levels to Watch in EUR/USD

From a technical perspective, EUR/USD has been building a base above the 1.0800 support level, with the pair now attempting to break above its 200-day moving average. A sustained move above this key indicator could open the door for a test of the 1.1000 psychological level, which has acted as resistance in recent months. On the downside, the 1.0700 area remains a critical support zone, and a break below that could signal a bearish reversal.

Traders are also watching the Relative Strength Index (RSI), which has been hovering around the 50 mark, indicating a neutral momentum. However, a clear break above 60 would suggest that bullish momentum is building. The recent price action suggests that the market is positioning for a potential upside breakout, with the pair having formed a series of higher lows since early March.

Market Implications and What to Watch

For traders and investors, the key takeaway is that the EUR/USD pair is at a pivotal juncture. The combination of hawkish ECB expectations and a softer US dollar is creating a supportive environment for the euro. However, the pair’s direction will largely depend on upcoming economic data and central bank communications. The next major test will be the release of the eurozone’s flash CPI data for May, which is due in the coming days. A hot reading could cement expectations of further ECB tightening and push the pair higher.

Additionally, the minutes from the Federal Reserve’s latest meeting, scheduled for release this week, could provide further clarity on the US rate outlook. If the minutes reveal a more dovish tone, it would likely weigh on the dollar and provide additional support for EUR/USD. Conversely, any surprises in the data could lead to increased volatility.

Conclusion

In summary, the EUR/USD pair is being supported by a shift in market sentiment towards a more hawkish ECB, which is backing fresh upside in the exchange rate. While the technical picture suggests a potential breakout, the pair’s trajectory will be heavily influenced by upcoming economic data and central bank communications. Traders should remain cautious and monitor key levels and events to navigate the evolving landscape.

FAQs

Q1: What is driving the EUR/USD forecast?
The EUR/USD forecast is being driven by increasing market bets that the European Central Bank will maintain a hawkish policy stance, with rate hikes expected, while the Federal Reserve is seen as more likely to pause. This policy divergence is supporting the euro.

Q2: What are the key technical levels to watch in EUR/USD?
Key technical levels include the 1.0800 support, the 200-day moving average around 1.0850, and the 1.1000 resistance level. A break above the 200-day MA could signal further upside, while a drop below 1.0700 would be bearish.

Q3: How does ECB policy affect the euro?
ECB policy directly influences the euro’s value through interest rates. When the ECB signals higher rates or maintains a hawkish stance, it makes euro-denominated assets more attractive, potentially strengthening the euro against other currencies like the US dollar.

This post EUR/USD Forecast: Hawkish ECB Bets Back Fresh Upside first appeared on BitcoinWorld.

– Written by


James Fuller

STORY LINK Pound-Yen Forecast: Intervention Keeps 216 Ceiling in Focus

The Pound to Japanese Yen exchange rate (GBP/JPY) ended Friday near 212.91 following a volatile week, with the Yen supported by coordinated US-Japan intervention and a shock decline in US payrolls.

Pound Sterling recovered from the August low near 209.63, but remained well below July’s 219.61 high as traders stayed wary of renewed intervention and faster Bank of Japan tightening.

GBP/JPY Forecasts: 209–216 range in focus

ING expects USD/JPY to remain broadly contained between 155 and 160 following official action to support the Yen.

With GBP/USD trading close to 1.35, that range would imply GBP/JPY levels of around 209–216 if Sterling-Dollar remained broadly unchanged.

This is an implied cross-rate range rather than a direct ING forecast for GBP/JPY.

According to ING; “We struggle to see this bilateral action driving USD/JPY sustainably below 155.”

GBP/JPY closed at 212.91, around 0.3% higher over the week after trading between 209.63 and 213.31 during August.

The pair remains more than 3% below July’s high of 219.61, recorded before Japanese and US authorities stepped into the market.

ING described the intervention as a “containment exercise” rather than an attempt to force a lasting Yen revaluation.

The bank commented; “This intervention does not change the fundamentals of a Fed close to hiking and Tokyo running a loose set of monetary and fiscal policies, which are weighing on the Yen.”

That assessment was made before Friday’s US employment report weakened one of the principal sources of support for USD/JPY.

ING nevertheless expects the intervention to limit investors from chasing USD/JPY above 160, buying time for Tokyo to introduce more Yen-supportive policies.

Crédit Agricole is less convinced that the intervention gains will last.

The bank forecasts USD/JPY averaging 162 during the third quarter and 163 in the fourth quarter.

At current Sterling-Dollar levels, these projections would be consistent with GBP/JPY near 218.60 and 219.90, although these are implied calculations rather than direct Crédit Agricole forecasts.

According to Crédit Agricole; “We continue to believe 164 in USD/JPY is the line in the sand for authorities. The recent joint intervention has reaffirmed this view.”

It added; “If the fundamentals do not shift for the JPY, its current intervention gains could also fade.”

The Yen strengthened again on Friday after US non-farm payrolls unexpectedly fell by 23,000 in July, compared with forecasts for an 80,000 increase.

The weak report pushed US yields lower and reduced expectations of a September Federal Reserve rate hike, sending USD/JPY briefly below 157.

Sterling’s own interest-rate support also remains uncertain.

MUFG commented; “Yield support has underpinned Sterling resilience,” but added; “We suspect the move at the front-end of the curve is now overdone.”

The bank warned that easing energy risks could lower UK yields and take the Pound lower, while renewed financial-market volatility would also be likely to undermine Sterling.

In the near term, ING’s implied 209–216 range offers the clearest guide for GBP/JPY.

A renewed Yen surge would bring the August low at 209.63 back into focus, while a recovery above 213.31 could open a move towards 216.

Crédit Agricole’s implied 218–220 region would require the intervention impact to fade and Sterling to remain firm, while further official action or stronger Bank of Japan tightening signals would keep the downside risks dominant.

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TAGS: Pound Yen Forecasts

The euro is finding renewed strength against the US dollar as markets increase bets on a more hawkish European Central Bank (ECB) policy path, with traders pricing in a higher likelihood of rate hikes in the coming months. This shift in expectations is providing fresh upside momentum for the EUR/USD currency pair, which has been trading in a range but now appears poised for a breakout.

Why Hawkish ECB Bets Are Supporting the Euro

The core driver behind the euro’s recent resilience is the market’s growing conviction that the ECB will maintain a tighter monetary policy stance compared to earlier expectations. Recent comments from several ECB policymakers have signaled a willingness to continue raising interest rates to combat persistent inflation in the eurozone, even as the region’s economic growth shows signs of slowing. This contrasts with the Federal Reserve, which is widely expected to pause its rate hiking cycle, creating a policy divergence that favors the euro.

According to money market pricing, the probability of a 25-basis-point rate hike at the ECB’s next meeting has risen sharply over the past week. This repricing has been fueled by stronger-than-expected inflation data from key eurozone economies, particularly Germany and France, which have shown that price pressures remain sticky. As a result, the yield differential between German and US government bonds has narrowed, making euro-denominated assets more attractive to investors.

Technical Levels to Watch in EUR/USD

From a technical perspective, EUR/USD has been building a base above the 1.0800 support level, with the pair now attempting to break above its 200-day moving average. A sustained move above this key indicator could open the door for a test of the 1.1000 psychological level, which has acted as resistance in recent months. On the downside, the 1.0700 area remains a critical support zone, and a break below that could signal a bearish reversal.

Traders are also watching the Relative Strength Index (RSI), which has been hovering around the 50 mark, indicating a neutral momentum. However, a clear break above 60 would suggest that bullish momentum is building. The recent price action suggests that the market is positioning for a potential upside breakout, with the pair having formed a series of higher lows since early March.

Market Implications and What to Watch

For traders and investors, the key takeaway is that the EUR/USD pair is at a pivotal juncture. The combination of hawkish ECB expectations and a softer US dollar is creating a supportive environment for the euro. However, the pair’s direction will largely depend on upcoming economic data and central bank communications. The next major test will be the release of the eurozone’s flash CPI data for May, which is due in the coming days. A hot reading could cement expectations of further ECB tightening and push the pair higher.

Additionally, the minutes from the Federal Reserve’s latest meeting, scheduled for release this week, could provide further clarity on the US rate outlook. If the minutes reveal a more dovish tone, it would likely weigh on the dollar and provide additional support for EUR/USD. Conversely, any surprises in the data could lead to increased volatility.

Conclusion

In summary, the EUR/USD pair is being supported by a shift in market sentiment towards a more hawkish ECB, which is backing fresh upside in the exchange rate. While the technical picture suggests a potential breakout, the pair’s trajectory will be heavily influenced by upcoming economic data and central bank communications. Traders should remain cautious and monitor key levels and events to navigate the evolving landscape.

FAQs

Q1: What is driving the EUR/USD forecast?
The EUR/USD forecast is being driven by increasing market bets that the European Central Bank will maintain a hawkish policy stance, with rate hikes expected, while the Federal Reserve is seen as more likely to pause. This policy divergence is supporting the euro.

Q2: What are the key technical levels to watch in EUR/USD?
Key technical levels include the 1.0800 support, the 200-day moving average around 1.0850, and the 1.1000 resistance level. A break above the 200-day MA could signal further upside, while a drop below 1.0700 would be bearish.

Q3: How does ECB policy affect the euro?
ECB policy directly influences the euro’s value through interest rates. When the ECB signals higher rates or maintains a hawkish stance, it makes euro-denominated assets more attractive, potentially strengthening the euro against other currencies like the US dollar.

USD/JPY moved lower as traders focused on falling Treasury yields. The yield of 2-year Treasuries declined towards the 4.20% level, while the yield of 10-year Treasuries settled near 4.65%.

If USD/JPY settles below the 157.00 level, it will move towards the support level at 154.50 – 155.00. On the upside, a successful test of the resistance at 157.50 – 158.00 will push USD/JPY towards the next resistance level, which is located in the 159.50 – 160.00 range.

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