The EUR/USD fell to a new multi-year low of just shy of 1.0200, before bouncing modestly off its earlier lows. The currency pair is now on track to drop for the fourth consecutive month. In the last 15 weeks, it has only managed two small positive weekly closes. The bearish momentum has been gathering pace, owing largely to a strengthening US dollar. Meanwhile, weak growth in the Eurozone and China have also weighed on the single currency, not to mentioned ongoing political turmoil in Germany and France. Against this backdrop, the EUR/USD forecast remains bearish, and we could see the pair drop below $1.02 handle in the early parts of the week ahead.

EUR/USD forecast: Why has the dollar been rising?

The greenback has been supported by investors repricing US interest rates higher due, first and foremost, to expectations of inflationary policies under Donald Trump, when he takes office later this month. At the same time, we have seen surprising strength in US data. This was again highlighted by the non-farm payrolls report on Friday, pointing to a labour market that appears to be gaining momentum again. Consequently, traders have now shifted the full pricing of the next Fed rate cut all the way to the start of Q4. Consequently, US bond yields have pushed further higher, with the benchmark 10-year now yielding 4.76% – and getting closer to last year’s high of 5.02% that was hit in October, just before the Fed pivoted. Due to this hawkish repricing of US interest rates, the EUR/USD forecast remains bearish as we look forward to another week of volatility. US CPI and Chinese GDP are among the data highlight to watch.

Source: TradingView.com

So, how strong was the jobs growth?

Well, it was almost extremely robust. While revisions shaved about 8K off the previous two months’ figures, the December payrolls report significantly outperformed expectations. Markets reacted swiftly: stock index futures sold off, and the dollar gained strength against all major currencies, except the yen. The unemployment rate also declined to 4.1% from 4.2%, bolstering the argument for an extended pause in policy changes from the Fed. Meanwhile, average earnings met expectations, rising 0.3% month-over-month and 3.9% year-over-year, slightly down from 4.0%. The combination of strong headline job gains and steady wage growth highlights a resilient labour market.

Attention turns to US CPI and Chinese growth

Should CPI inflation data on Wednesday show signs of persisting, any calls for a rate cut in the first half of the year will be firmly dismissed again. In any case, the upside potential for the EUR/USD is likely to be limited until something changes fundamentally. Thus, if CPI is to cause a shift in the market, it will have to be significantly weaker to cause a major dent in the dollar’s bullish trend or the EUR/USD’s bearish trend.

On Friday, we will have some important data from China. In addition to GDP figures, the day will bring the latest retail sales and industrial production data from the world’s second-largest economy. China’s gloomy economic outlook has driven a surge in demand for Chinese bonds, pushing down yields, local stock prices, and the yuan. It has also had a negative influence on the EUR/USD exchange rate. Stronger data will be crucial to alleviating concerns about a potential deflationary spiral in the Chinese economy. But if data reveals weakening growth, then this should further weigh on Chinese assets, and undermine the EUR/USD forecast.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

The EUR/USD fell to a new multi-year low of just shy of 1.0200, before bouncing modestly off its earlier lows. The currency pair is now on track to drop for the fourth consecutive month. In the last 15 weeks, it has only managed two small positive weekly closes. The bearish momentum has been gathering pace, owing largely to a strengthening US dollar. Meanwhile, weak growth in the Eurozone and China have also weighed on the single currency, not to mentioned ongoing political turmoil in Germany and France. Against this backdrop, the EUR/USD forecast remains bearish, and we could see the pair drop below $1.02 handle in the early parts of the week ahead.

EUR/USD forecast: Why has the dollar been rising?

The greenback has been supported by investors repricing US interest rates higher due, first and foremost, to expectations of inflationary policies under Donald Trump, when he takes office later this month. At the same time, we have seen surprising strength in US data. This was again highlighted by the non-farm payrolls report on Friday, pointing to a labour market that appears to be gaining momentum again. Consequently, traders have now shifted the full pricing of the next Fed rate cut all the way to the start of Q4. Consequently, US bond yields have pushed further higher, with the benchmark 10-year now yielding 4.76% – and getting closer to last year’s high of 5.02% that was hit in October, just before the Fed pivoted. Due to this hawkish repricing of US interest rates, the EUR/USD forecast remains bearish as we look forward to another week of volatility. US CPI and Chinese GDP are among the data highlight to watch.

Source: TradingView.com

So, how strong was the jobs growth?

Well, it was almost extremely robust. While revisions shaved about 8K off the previous two months’ figures, the December payrolls report significantly outperformed expectations. Markets reacted swiftly: stock index futures sold off, and the dollar gained strength against all major currencies, except the yen. The unemployment rate also declined to 4.1% from 4.2%, bolstering the argument for an extended pause in policy changes from the Fed. Meanwhile, average earnings met expectations, rising 0.3% month-over-month and 3.9% year-over-year, slightly down from 4.0%. The combination of strong headline job gains and steady wage growth highlights a resilient labour market.

Attention turns to US CPI and Chinese growth

Should CPI inflation data on Wednesday show signs of persisting, any calls for a rate cut in the first half of the year will be firmly dismissed again. In any case, the upside potential for the EUR/USD is likely to be limited until something changes fundamentally. Thus, if CPI is to cause a shift in the market, it will have to be significantly weaker to cause a major dent in the dollar’s bullish trend or the EUR/USD’s bearish trend.

On Friday, we will have some important data from China. In addition to GDP figures, the day will bring the latest retail sales and industrial production data from the world’s second-largest economy. China’s gloomy economic outlook has driven a surge in demand for Chinese bonds, pushing down yields, local stock prices, and the yuan. It has also had a negative influence on the EUR/USD exchange rate. Stronger data will be crucial to alleviating concerns about a potential deflationary spiral in the Chinese economy. But if data reveals weakening growth, then this should further weigh on Chinese assets, and undermine the EUR/USD forecast.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

British Pound Talking Points:

• It was a rough week for the British Pound, as GBP sold-off against all of the Euro, U.S. Dollar and Japanese Yen.
• Next Wednesday is key as we’ll see the next release of UK CPI ahead of the release of US CPI data.

It was a brutal week for the British Pound as the currency lost against all of the U.S. Dollar, the Euro and the Japanese Yen. In the major pair of GBP/USD, a fresh yearly low came into play as the final four days of the week produced a move that dropped by more than 380 pips, at one point. Perhaps more disconcerting for Sterling bulls is where the move took place, as a prior support at 1.2300 was taken-out before a bounce developed from 1.2250. But even that couldn’t last as the Friday NFP report helped to produce another downside thrust in the move until price breached the 1.2200 level.

At this point, there’s no sign yet of bears letting up and the next major level of contention below current price is the 1.2000 psychological level that hasn’t traded since early-2023.

GBP/USD Weekly Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

GBP/USD

At this point the challenge on Cable is how established the move has become. As of this writing RSI is pushing back into oversold territory on the daily chart and this would be the first such occurrence of that since November. This, of course, does not preclude bearish continuation, but it does urge caution from chasing, and given prior short-term support structure, there are a few areas of note that bears can look to for lower-high resistance.

The psychological level of 1.2250 is of interest, after which the Fibonacci level I had looked at earlier in the week at 1.2297 comes into the picture. And above that is another Fibonacci level at 1.2367.

GBP/USD Daily Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

GBP/JPY

GBP/JPY printed an evening star formation that confirmed on Wednesday, and that led to a strong sell-off on Thursday and Friday. But similarly, there were some items of note at key support zones last week. I had looked at the 193.61-194.11 zone in the Wednesday article as this is the bottom portion of a gap from back in 2008. That area led to a bounce on Thursday but sellers caught the break on Friday, making a strong push down to a fresh monthly low.

For next week, the focus is on deeper support, looking to the 190.81 Fibonacci level which is nearing confluence with a bullish trendline drawn from August and December swing-lows.

GBP/JPY Daily Price Chart

Chart prepared by James Stanley, GBP/JPY on Tradingview

EUR/GBP

As of this writing EUR/GBP has gained 1.09% this week, which would stand as the largest weekly gain for the pair since January of 2023. The pair rallied up to the 23.6% retracement of the two-year-move, and this follows almost two months of stalling after sellers were unable to elicit any significant bearish continuation below .8260.

EUR/GBP Weekly Price Chart

Chart prepared by James Stanley, EUR/GBP on Tradingview

EUR/GBP Shorter-Term

Given the breakout to a fresh two-month high, the next natural question is whether a bullish trend can follow Given prior price structure, there’s now support potential around prior resistance, and I’m tracking this from around .8311 up to .8328. And for next resistance, there’s a prior swing-high at .8448 before the psychological level of .8500 would come back into play.

EUR/GBP Daily Price Chart

Chart prepared by James Stanley, EUR/GBP on Tradingview

— written by James Stanley, Senior Strategist

British Pound Talking Points:

• It was a rough week for the British Pound, as GBP sold-off against all of the Euro, U.S. Dollar and Japanese Yen.
• Next Wednesday is key as we’ll see the next release of UK CPI ahead of the release of US CPI data.

It was a brutal week for the British Pound as the currency lost against all of the U.S. Dollar, the Euro and the Japanese Yen. In the major pair of GBP/USD, a fresh yearly low came into play as the final four days of the week produced a move that dropped by more than 380 pips, at one point. Perhaps more disconcerting for Sterling bulls is where the move took place, as a prior support at 1.2300 was taken-out before a bounce developed from 1.2250. But even that couldn’t last as the Friday NFP report helped to produce another downside thrust in the move until price breached the 1.2200 level.

At this point, there’s no sign yet of bears letting up and the next major level of contention below current price is the 1.2000 psychological level that hasn’t traded since early-2023.

GBP/USD Weekly Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

GBP/USD

At this point the challenge on Cable is how established the move has become. As of this writing RSI is pushing back into oversold territory on the daily chart and this would be the first such occurrence of that since November. This, of course, does not preclude bearish continuation, but it does urge caution from chasing, and given prior short-term support structure, there are a few areas of note that bears can look to for lower-high resistance.

The psychological level of 1.2250 is of interest, after which the Fibonacci level I had looked at earlier in the week at 1.2297 comes into the picture. And above that is another Fibonacci level at 1.2367.

GBP/USD Daily Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

GBP/JPY

GBP/JPY printed an evening star formation that confirmed on Wednesday, and that led to a strong sell-off on Thursday and Friday. But similarly, there were some items of note at key support zones last week. I had looked at the 193.61-194.11 zone in the Wednesday article as this is the bottom portion of a gap from back in 2008. That area led to a bounce on Thursday but sellers caught the break on Friday, making a strong push down to a fresh monthly low.

For next week, the focus is on deeper support, looking to the 190.81 Fibonacci level which is nearing confluence with a bullish trendline drawn from August and December swing-lows.

GBP/JPY Daily Price Chart

Chart prepared by James Stanley, GBP/JPY on Tradingview

EUR/GBP

As of this writing EUR/GBP has gained 1.09% this week, which would stand as the largest weekly gain for the pair since January of 2023. The pair rallied up to the 23.6% retracement of the two-year-move, and this follows almost two months of stalling after sellers were unable to elicit any significant bearish continuation below .8260.

EUR/GBP Weekly Price Chart

Chart prepared by James Stanley, EUR/GBP on Tradingview

EUR/GBP Shorter-Term

Given the breakout to a fresh two-month high, the next natural question is whether a bullish trend can follow Given prior price structure, there’s now support potential around prior resistance, and I’m tracking this from around .8311 up to .8328. And for next resistance, there’s a prior swing-high at .8448 before the psychological level of .8500 would come back into play.

EUR/GBP Daily Price Chart

Chart prepared by James Stanley, EUR/GBP on Tradingview

— written by James Stanley, Senior Strategist

• Business activity in the US services sector improved more than expected.

• The US economy added 256,000 jobs in December.

• US unemployment dropped to 4.1%, below estimates of 4.2%.

The GBP/USD weekly forecast suggests further weakness as the US dollar picks momentum after robust jobs data. 

Ups and downs of GBP/USD 

The GBP/USD pair had a bearish week as the dollar rallied amid upbeat US economic data. Figures revealed that business activity in the services sector improved more than expected. Meanwhile, employment numbers were mostly better than expected.

-Are you looking for tips for forex trading? Check out the details-

Notably, the nonfarm payrolls report on Friday showed an unexpected surge in job growth and a drop in the unemployment rate. The US economy added 256,000 jobs in December, compared to forecasts of 164,000. Meanwhile, unemployment dropped to 4.1%, below estimates of 4.2%. Consequently, Fed rate cut bets plunged, boosting the dollar.

Next week’s key events for GBP/USD

Next week, market participants will focus on inflation and retail sales data from the US and the UK. At the same time, the UK will release figures on manufacturing production and GDP. The US wholesale and consumer inflation numbers will shape the outlook for future Fed rate cuts. Recent reports have shown that inflation has paused its decline to the 2% target. Another upbeat report will lower expectations for rate cuts, boosting the greenback. 

Similarly, UK inflation and retail sales will guide the outlook for Bank of England rate cuts. Upbeat reports will lower bets for rate cuts, while downbeat numbers will further hurt the pound.

GBP/USD weekly technical forecast: Bears eye new lows below 1.2250

On the technical side, the GBP/USD price has punctured the 1.2250 support level to make a new swing low in the downtrend. The price trades well below the 22-SMA, showing bears are holding the reigns. Meanwhile, the RSI has entered the oversold region, suggesting solid bearish momentum.

-Are you looking for automated trading? Check our detailed guide-

GBP/USD has maintained a solid downtrend since the price broke below the 22-SMA. In all this time, the RSI has stayed in bearish territory but has failed to dip into the oversold region. This shows that bears still have more room to push the prices lower. Therefore, the break below the 1.2250 support will allow the price to reach lower support levels. 

Moreover, the trend will only reverse if the RSI shows fading momentum and the price breaks above the 22-SMA.

Looking to trade forex now? Invest at eToro!

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.