Euro to Dollar Week Ahead Forecast: Correction Risk Emerges on Radar

Image © European Central Bank

The Euro to Dollar exchange rate rallied to a new 42-month high to open the new week amid a further unraveling of the greenback, however, there might now be a risk of a setback that could see it back below 1.13 following the release of the latest S&P Global PMI surveys on Wednesday.

EUR/USD rallied as far as 1.1574 and to its highest since November 2021 on Monday as the Dollar fell further in another broad-based decline from the Asia open, with its losses coming alongside weakness in parts of the equity and bond markets amid what was an extended public holiday for Europe.

However, the rally has now lifted the pair more than 8% above its 100-day moving average and with another volley of PMI surveys incoming on Wednesday, some traders have taken profits on bullish wagers in favour of the single currency and now intend to await more favourable levels to buy back in.

“There’s a good chance I will rebuy at some point, but for now I am taking profit on the EURUSD long from 1.1277 right here. This does not mean I think the move is done. It just means I think I can get long again at better levels and/or keep an open mind,” says Brent Donnelly, CEO at Spectra Markets and a veteran FX trader.

Above: EUR/USD shown at daily intervals with Fibonacci retracements indicating possible areas of technical support. Click for closer inspection.

“Last night’s price action was informative as the path of least resistance appears to be lower USD, lower US stocks, and lower US bonds. Trump’s threats to fire Powell add to the Sell America theme and Asia seems to have an endless appetite for gold and any currency not labelled USD,” he adds, in a Monday commentary.

Prominent on the risk radar for the days ahead are the S&P Global PMI surveys of the various European manufacturing and services sectors: These are highly sentimental indicators, which rarely do much good for the single currency and might likely to imply a deterioration of economic conditions for this month.

That’s due to the risk of tariffs hampering the European export sector and the eruption of the trade conflict between Washington and Beijing in earnest in April, however, any losses for the single currency might also be short-lived and likely to elicit dip-buyers due to the deteriorating Dollar outlook.

“While we still treat a removal of the Fed chair as a low​-​likelihood event, the live prospect of reduced Fed independence unlocks dollar risks too large to ignore,” says Themistoklis Theotakis, head of FX research at Barclays. “For that reason, we bring our 12 month EUR/$ forecast 9 big figures higher, to 1.15 for Q1 26 (as well as Q3 25 & Q4 25). We allow for some more near-term USD weakness to 1.17 (Q2 25).”

Above: EUR/USD shown at weekly intervals with Fibonacci retracements indicating possible areas of technical resistance. Click for closer inspection.

White House tariff policy and its side effects were already weighing heavily on the Dollar before now, however, sentiment and its prospects at least appear to have been dimmed further this week with President Donald Trump’s intensifying campaign to force Federal Reserve Chairman Jerome Powell to cut interest rates.

This led Barclays to raise its forecasts for EUR/USD and warn of scope for an extension of the rally to 1.17 on Monday, which would bring the pair within hair’s breadth of testing 1.1756 and the 78.6% Fibonacci retracement of its January 2021 downtrend from 1.2358, a major technical resistance level.

For financial markets and those working in or around them, interference in the affairs of so-called independent central banks is equivalent to a sacrilegious act, with the claim being that without arrangements to keep their operations at arm’s length from elected officials and the public, inflation could not be properly controlled.

“The admission that this is being studied at all should be taken very seriously and very negatively,” says Dr. Win Thin, head of global markets strategy at Brown Brothers Harriman. “We know that the Trump administration has wanted a weaker dollar all along, but it is coming for all the wrong reasons.”