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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A dull week ends with the EUR/USD pair surging to a fresh multi-week high, trading around 1.1560 ahead of the close. Optimism about an end to the Middle East conflict dominated the headlines throughout the first half of the week, only to be followed by the usual delays and diluted hopes.

War headlines keep shaping sentiment

United States (US) President Donald Trump kept repeating throughout the week that he believed that the war with Iran would be over “soon.” Market players, however, believe the ongoing pause in the Middle East crisis has more to do with reports suggesting the US Army is running out of highly accurate long-range missiles after its five-month war with Iran.

Also, Iran’s chief negotiator Mohammad Bagher Ghalibaf accused Trump of staging “theater diplomacy,” accusing the US of bullying and breaking promises. Tehran presented a plan on how to manage the Strait of Hormuz, which includes blocking the critical passage to US and Israeli ships. Traffic through the critical passage remains restrained, while skirmishes between different Middle East countries continue.

On a positive note, Oil prices remained within familiar levels, with the barrel of West Texas Intermediate (WTI) crude trading around $77 as the week comes to an end.

United States weak labor market?

Markets also took note of the US labor market health, with soft readings coupled with persistent inflation-related concerns weighing on the US Dollar (USD). ISM published the July Purchasing Managers’ Index, which showed business activity in the country remained in expansionary territory, with the Manufacturing Index printing at 55.6, and the Services PMI climbing to 54.1. The reports, however, also showed that the Price Paid Indexes linked to both sectors came in higher than anticipated and above 70, hinting at persistent inflationary pressures.

Regarding employment figures, JOLTS Job Openings edged modestly lower in June, although hiring remained unchanged. The ADP Employment Change survey showed that the private sector added measly 44K new jobs in July, down from the 95K previous and the expected 70K, while the Challenger Job Cuts report showed that US-based employers announced 33,429 cuts in July, down from the 45,849 registered in June.

Finally, the Nonfarm Payrolls (NFP) report released on Friday showed that the country lost 23K jobs in July while the June reading was downwardly revised to measly 20K from the original estimate of 57K. On a positive note, however, the Unemployment Rate shrank to 4.1%, its lowest in over a year, although the labor force Participation Rate also eased a tad, to 61.4% from the previous 61.5%.

Euro lacking life of its own

Financial markets are all about sentiment and EUR/USD moved accordingly to USD strength/weakness, with the shared currency lacking life of its own.

Data from the Union was far from encouraging: Retail Sales in Germany fell 0.2% in June vs the previous 2.1% advance, while the Eurozone figure for the same month came in at -0.3%, down from the 0.4% advance posted in May. Also, the bloc Producer Price Index (PPI) rose 4.6% in the year to June as expected, down from the previous 5.9%.

The Euro was unable to attract buyers despite European Central Bank (ECB) President Christine Lagarde warning that surging Oil prices could shape the September rate decision, hinting at an interest rate hike at the next meeting. Indeed, data supports the case for another hike, as euro area annual inflation is expected to be 2.9% in July 2026, up from 2.8% in June according to a flash estimate from Eurostat, the statistical office of the European Union.

What’s next in the docket

Inflation takes center stage in the upcoming days, as the US will release the July Consumer Price Index (CPI) on Wednesday. Annual inflation, as measured by the CPI, is foreseen at 3.4%, slightly below the 3.5% posted in June. On the same day, Germany will unveil the final reading of the July Harmonized Index of Consumer Prices (HICP), while the US will publish the July Producer Price Index (PPI) on Thursday, previously at 5.5%. Friday will bring the first revision of the Eurozone Q2 Gross Domestic Product (GDP), US Retail Sales and the preliminary estimate of the July Michigan Consumer Sentiment Index.

And of course, the focus will remain on Middle East developments and how Oil Prices react to headlines.

EUR/USD Technical Outlook:

The EUR/USD pair turned bullish, according to technical readings in the daily chart, although it still faces some barriers before confirming a steeper advance. The pair holds above the 20-day Simple Moving Average (SMA), which advances to 1.1453, but remains below the 100-day SMA at 1.1569 and the 200-day SMA at 1.1629, both flat. The 14-period Relative Strength Index (RSI) indicator aims north at 62, while the Momentum indicator also advances above its midline, suggesting ongoing bullish pressure despite the pair struggling to decisively reclaim its heavier moving averages overhead.

In the weekly chart, EUR/USD trades just under the 20-week SMA at 1.1566, which caps the upside and keeps the near-term tone neutral. The pair remains above both the 100-week SMA at 1.1316 and the 200-week SMA at 1.1041, suggesting a broadly constructive medium-term backdrop even as near-term momentum stalls. The Momentum indicator remains below its midline, while the RSI hovers near the 50 line, suggesting a lack of clear directional pressure and favoring consolidation over trend extension for now.

On the topside, initial resistance is located at the 100-day SMA at 1.1569, with a stronger barrier at the 200-day SMA near 1.1629, where sellers could reassert control if tested. On the downside, immediate support is provided by the 20-day SMA at 1.1453, and a daily close back under this short-term average would hint at fading upside momentum and open the door for a deeper pullback within the broader range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

– Written by


Frank Davies

STORY LINK British Pound to Dollar Forecast: GBP Steady as Middle East Optimism Cools

The Pound US Dollar (GBP/USD) exchange rate remained trapped in a narrow range on Thursday as investors balanced geopolitical uncertainty against expectations for key US labour market data.

At the time of writing, GBP/USD was trading at around $1.3459, largely unchanged from Thursday’s opening levels.

The US Dollar (USD) held firm on Thursday as investors grew less confident that a ceasefire agreement between the US and Iran would be reached in the immediate future.

Earlier in the week, optimism over progress in negotiations had boosted market sentiment and reduced demand for the safe-haven ‘Greenback’.

However, reports indicating that talks remain deadlocked over shipping access, monitoring arrangements and other key issues prompted traders to scale back expectations of a swift breakthrough.

Iran also reiterated that any reopening of the Strait of Hormuz depends on resolving several unresolved conditions, helping to lift oil prices and restore some defensive demand for the US Dollar.

The Pound (GBP) traded without a clear direction on Thursday as the lack of UK economic releases left investors with little reason to adjust their positions.

Stable trading in the UK gilt market also failed to provide Sterling with meaningful support, while subdued conditions across global financial markets kept volatility low.

With few domestic or international catalysts emerging, the UK currency remained confined to a tight trading range against most of its peers.

Near-Term GBP/USD Forecast: US Payrolls to Drive End-of-Week Trade?

Attention now turns to Friday’s US non-farm payrolls report, which is expected to be the key driver of movement in the Pound to US Dollar (GBP/USD) exchange rate.

Economists expect employment growth to have recovered in July following June’s particularly weak reading.

Should payroll growth once again disappoint and remain below the 100,000 mark, investors may further reduce expectations of a Federal Reserve interest rate hike in September, potentially dragging the US Dollar lower.

Meanwhile, with the UK calendar remaining devoid of notable economic releases, Sterling is likely to continue taking its cues from broader market sentiment and moves in its major counterparts.

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Crédit Agricole forecasts USD/JPY averaging 162 in Q3 and 163 in Q4, arguing that 164 remains the key intervention threshold despite weaker valuation extremes than in past episodes.

The US Dollar to Yen (USD/JPY) exchange rate has recovered to around 158.3 after last week’s violent intervention-driven fall, but Crédit Agricole does not think the underlying case for a high exchange rate has disappeared.

The bank still forecasts USD/JPY averaging 162 in the third quarter and 163 in Q4, while treating 164 as the effective ceiling authorities are prepared to defend.

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

The important wrinkle is that this intervention began from a less stretched starting point than comparable joint operations in 1998 and 2011.

“Relative to the 1998 and 2011 joint interventions, the misvaluations in USD/JPY and EUR/JPY are less extreme currently,” the bank said, “so the present joint intervention has started from a weaker point.”

That matters because past coordinated interventions only bought time.

“The effects of the joint interventions in 1998 and 2011 faded after a few months as fundamentals took back control of FX markets,” Crédit Agricole said. “Likewise, if the fundamentals do not shift for the JPY, its current intervention gains could also fade.”

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USD/JPY has fallen sharply from July’s peak near 164, but has already recovered from the intervention lows below 156.

Crédit Agricole sees several reasons for renewed upside pressure: it expects the Bank of Japan’s next rate hike only in mid-2027, sees US economic outperformance attracting capital into the Dollar, and expects oil prices to stay elevated relative to pre-war levels.

Japan’s fiscal position is another worry.

“Investors will remain nervous about Japan’s fiscal sustainability given that PM Sanae Takaichi is not backing down from her fiscal spending plans,” the bank said.

Retail Traders May Be Blunting Intervention

MUFG adds a less obvious reason why official Yen buying may struggle to produce a lasting move.

Japanese retail margin traders were already positioned heavily for intervention before it happened.

“The USD/JPY short position increased in June to a record total,” MUFG said. “The implied short USD/JPY position was USD17.65bn which… is an extreme position and by some distance a record.”

That figure was larger than MUFG’s estimate of the probable total size of the latest intervention.

The implication is awkward for Tokyo. Retail traders who had already sold USD/JPY in anticipation of intervention were in a position to take profits as the pair collapsed.

“We can also assume that following intervention Japanese retail traders were quick to liquidate and were likely active buyers given the historic short position that was in place,” MUFG said.

“So Japan’s retail sector was likely a key buyer of USD/JPY on the decline during intervention, curtailing some of the impact of the MoF’s record yen buying intervention.”

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USD/JPY remains slightly higher in 2026 despite the sharp intervention-led reversal from July’s highs.

That helps explain why Crédit Agricole is reluctant to project a sustained move much lower.

Its research suggests Japan and the US have enough resources to defend 164, particularly if Tokyo makes use of the Fed’s FIMA facility, but the bank is not treating intervention as a substitute for fundamentals.

“We think they have enough to hold the exchange rate below that level,” Crédit Agricole said.

The likely result is an uncomfortable middle ground: authorities trying to stop USD/JPY breaking through 164, while interest-rate, energy and fiscal fundamentals continue pushing the pair back upwards.

The euro is extending its advance against the US dollar, with technical indicators suggesting the pair is poised to push beyond the 1.1600 level in the near term. As of the latest trading session, EUR/USD is trading near 1.1580, up 0.3% on the day, supported by a softer dollar and improving risk sentiment.

Technical Outlook: Breaking Above Key Resistance

The pair has been consolidating above the 50-day moving average, and a clear break above the 1.1600 handle would open the door to further upside toward the 1.1650 region, a level not seen since early September. Momentum indicators, including the Relative Strength Index (RSI), are pointing higher but remain below overbought territory, suggesting room for additional gains.

On the downside, immediate support is seen at 1.1550, followed by the 1.1500 psychological level. A failure to hold above 1.1550 could signal a retest of the 1.1450 area, but the overall bias remains tilted to the upside as long as the pair stays above the 50-day MA.

Market Drivers: Dollar Weakness and ECB Policy

The dollar has been under pressure amid expectations that the Federal Reserve may be nearing the end of its tightening cycle, while the European Central Bank (ECB) maintains a hawkish stance. Recent US economic data, including softer inflation figures, have reinforced the view that the Fed could pause rate hikes, undermining the dollar’s yield advantage.

In contrast, ECB officials have signaled further rate increases to combat persistent inflation in the eurozone. This policy divergence is a key factor supporting EUR/USD, as investors adjust their positions to reflect the shifting interest rate outlook.

Impact on Traders and Investors

For forex traders, a sustained break above 1.1600 could trigger a fresh wave of buying, with potential targets at 1.1650 and 1.1700. Conversely, a failure to break resistance might lead to profit-taking and a pullback toward 1.1500. Investors with exposure to European assets may also benefit from a stronger euro, as it boosts the value of euro-denominated holdings when converted to dollars.

Conclusion

In summary, EUR/USD’s technical setup favors further upside, with the 1.1600 level acting as a critical trigger for the next leg higher. While market sentiment and central bank policy will remain key drivers, the current momentum suggests that a break above 1.1600 is increasingly likely in the coming sessions.

FAQs

Q1: What is the key resistance level for EUR/USD?
The immediate resistance is at 1.1600, and a break above that level could lead to a test of 1.1650 and beyond.

Q2: Why is the euro strengthening against the dollar?
The euro is benefiting from a weaker dollar, driven by expectations that the Fed may pause rate hikes, while the ECB remains hawkish on inflation.

Q3: What are the key support levels to watch?
Initial support is at 1.1550, followed by the 1.1500 psychological level. A drop below 1.1500 could signal a deeper correction.