Euro to Dollar Week Ahead Forecast: Building Confidence

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The Euro looks increasingly ready to test some upside targets against the Dollar in the coming days thanks to the strong reaction to Friday's U.S. job report.

The Euro to Dollar exchange rate rallied to a high of 1.0812 on Friday after U.S. job figures came in weaker than analysts were expecting, prompting markets to bring forward the expected start date of the U.S. Federal Reserve rate cutting cycle from December to September.

This lowered global bond yields and boosted investor sentiment, which are two factors that tend to work against the broader Dollar while supporting the Euro. Should this broader backdrop remain in place in the coming week we would look for some steady upside in Euro-Dollar.

We note that a chunk of the initial post-job report rally was faded in the hours following the job release, which suggests there remains some hesitancy in the market, which will limit the pace at which the Euro advances in the near term.

After all, it will take more than just one soft jobs report to convince investors the U.S. economy is finally cooling enough to invite rate cuts.

The below chart shows that Friday saw Euro-Dollar clear the resistance formed at the 23.6% Fibonacci retracement of the 2024 decline (the second from bottom horizontal line). The exchange rate spiked up to the 38.2% line where it also meets the 200-day moving average, which suggests a decent layer of resistance.

Above: EUR/USD at daily intervals with Fibonacci levels and the 200 DMA illustrated. Track EUR/USD with your own custom rate alerts. Set Up Here

Further advances can result in another test of this level (approximately 1.08) in the coming week. Weakness will likely be supported by the 23.6% Fib line which which turns from resistance to support.

The coming week will be a busy one from a Federal Reserve rate expectations perspective, which is, of course, the main driver of the Euro-Dollar.

On this front we have a host of Fed speakers lined up to give their views on recent data and what they think it means for the policy outlook. This could provide some volatility and provide some churn, but ultimately, it won't be until mid-month that the more important macro releases come through, the highlight being the inflation print.