Euro Near Weekly High as Bulls Test Resistance

Key Moments

EUR/USD Supported by Softer Dollar, Capped by Geopolitical Jitters

The EUR/USD pair extended its advance for a third straight session, climbing to a new weekly high in the area of 1.1460 during the Asian trading hours on Friday. The move has been underpinned by continued weakness in the US Dollar, as the market digests less hawkish signals from the latest FOMC Minutes. This USD softness has provided a steady tailwind to the pair.

At the same time, enduring geopolitical tensions have helped to limit deeper Dollar losses, preventing EUR/USD from breaking decisively higher and effectively containing spot prices below more substantial resistance levels.

Fibonacci Levels and Bearish Flag Shape Near-Term Outlook

From a charting standpoint, EUR/USD has so far failed to achieve clear acceptance above the 23.6% Fibonacci retracement of the April-June downswing. That inability to push through and hold beyond this retracement level has tempered aggressive bullish follow-through.

The rebound from the year-to-date low has unfolded within an upward-sloping channel. This pattern now appears to resemble a bearish flag, suggesting that the latest recovery remains constrained within a corrective framework and may attract fresh selling interest at higher levels.

Momentum Indicators Suggest Limited Downside While Channel Support Holds

Despite the potentially bearish pattern, momentum signals remain broadly supportive. The Relative Strength Index is positioned just below 60, while the MACD line is above the zero line with a mildly positive histogram. Taken together, these indicators point to contained downside pressure as long as the pair continues to respect the rising trend-channel support.

That channel floor is currently located near the 1.1400 area, which is viewed as a key pivot point for the near-term bias. A clear violation of this zone would mark a notable deterioration in the technical setup.

Key Technical Levels: Support and Resistance Map

A break below the 1.1400 region would bring into focus deeper structural supports clustered between 1.1327 and 1.1323. On the upside, traders are watching a series of nearby resistance markers that could determine whether the latest bounce can extend.

On the topside, the 200-period EMA at 1.1491 is the first notable hurdle, closely followed by the upper boundary of the ascending channel at 1.1494. A sustained break and acceptance above this narrow resistance band would clear the path toward the 38.2% retracement at 1.1524, with scope for an extension to the 50.0% retracement near 1.1586 if buying momentum strengthens.

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

Context: Euro and EUR/USD in the Global FX Landscape

The Euro is the shared currency of 20 European Union members within the Eurozone and is the second most actively traded currency globally after the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover exceeding $2.2 trillion. EUR/USD is the most traded currency pair worldwide, representing an estimated 30% of all FX trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

Role of the ECB in Driving Euro Dynamics

The European Central Bank (ECB), headquartered in Frankfurt, Germany, serves as the reserve bank for the Eurozone, setting interest rates and steering monetary policy. Its primary objective is to ensure price stability, which involves managing inflation and, when needed, supporting growth.

The ECB’s main policy lever is the adjustment of interest rates. Higher rates – or expectations of higher rates – tend to support the Euro, while lower rates generally weigh on the currency. Monetary policy decisions are taken at Governing Council meetings held eight times per year, with participation from the heads of national central banks in the Eurozone and six permanent members, including ECB President Christine Lagarde.

Impact of Inflation and Economic Data on the Euro

Inflation trends in the Eurozone are tracked by the Harmonized Index of Consumer Prices (HICP), a key gauge for the Euro. When inflation exceeds expectations, particularly if it moves above the ECB’s 2% target, the central bank is pushed toward tighter policy, which can bolster the Euro due to relatively higher yields.

Macroeconomic releases such as GDP, Manufacturing and Services PMIs, labor market figures, and consumer confidence surveys also shape Euro performance. Robust data generally supports the currency by signaling a healthier economy and potentially justifying higher interest rates. Conversely, weak readings can pressure the Euro lower. Data from Germany, France, Italy, and Spain carry particular weight, given that these four economies account for 75% of the Eurozone’s output.

Trade Balance and Its Influence on the Single Currency

The Trade Balance is another significant factor for the Euro, measuring the gap between export revenues and import expenditures over a given period. Strong demand for a region’s exports tends to lift its currency as foreign buyers increase demand for that currency to settle transactions.

A positive Trade Balance typically supports currency appreciation, while a negative balance can have the opposite effect, as it implies greater demand for foreign currencies to pay for imports than for the domestic currency driven by exports.