Euro to Dollar Rate Could be Gearing Up for 1.09: City Index

Image © Adobe Images

The US dollar has strengthened for a fourth consecutive day, sending the EUR/USD down for the fifth session.

The short-term EUR/USD technical forecast has turned bearish ever since breaking its trend line and 21-day moving average this week.

The EUR/USD is now nearing the lower end of its recent range around 1.1000 area after falling through a few short-term support levels this week, including the area between 1.1100 to 1.1125.

This 1.1100-1.1125 zone is now the most important hurdle to watch should we get any upside moves this week, say as a result of weaker US data. Only a closing break above this zone would be a positive technical development.

On the downside, if support around the 1.1000-1.1030 area breaks, and we hold below this region, then that could pave the way for a potential drop towards the next important technical area circa 1.0900.

Transfer Like a Pro: Don't send your money before considering utilising three tools that were once reserved exclusively for big institutional clients. Learn more in Corpay's free guide: "Gaining Exchange Rate Certainty".

The greenback has been bolstered by several reasons.

At the start of the week, it was Fed Chair Powell’s hawkish remarks that provided the greenback a lift.

Then we had a couple of stronger-than-expected labour market indicators, which reduced the likelihood of another 50 basis point rate cut this year. We have also seen weakness come into a couple of major foreign currencies.

Investment bank EUR/USD consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. Featuring the median, mean, high and low points forecasted by over 30 investment banks. Please request a copy here.

On Wednesday, the yen slumped after Japanese Prime Minister Shigeru Ishiba said he does not “believe that we are in an environment that would require us to raise interest rates further,” following a meeting with Bank of Japan Governor Kazuo Ueda.

Today, it was the Bank of England Governor that sent the pound slumping after saying that the UK central bank could be a “bit more aggressive” in cutting interest rates, provided the news on inflation continued to be good.

Adding to the dollar’s momentum has been the ongoing Middle East conflict, which has driven up geopolitical risks and undermining the EUR/USD forecast and risk-sensitive currencies across the board.

This newly found momentum means the greenback is likely to remain supported on the dips until the release of the US jobs report on Friday, which could set the tone for its near-term direction before attention shifts to the US presidential election.

Tensions in the Middle East have played a significant role in the dollar's recent performance. The latest missile exchange between Israel and Iran has left traders watching closely for Israel’s next move.

Any major retaliation could shake markets further. Israel has vowed to respond while intensifying its ground operations in Lebanon. However, there’s also the possibility of de-escalation.

Should Israel opt for a more restrained response, avoiding key sites like Iran's nuclear facilities, markets may calm down, stabilising the euro and other risk-sensitive currencies.

But if the conflict escalates, the EUR/USD forecast could see even greater headwinds as risk-aversion grows.