Daily Price Outlook
During the European trading session, the EUR/USD currency pair continued its upward trend, reaching an intra-day high of 1.0515.
This bullish rally was driven by positive economic data from the Eurozone. Another factor supporting the EUR/USD rally is the decline in the US Dollar’s (USD) strength.
Moving ahead, the key focus for the EUR/USD pair will be the Federal Reserve’s policy decision on Wednesday, with rates expected to stay at 4.25%-4.50%.
Investors will also pay close attention to Fed Chair Jerome Powell’s comments for policy clues. Meanwhile, January’s US S&P Global PMI data at 14:45 GMT could affect EUR/USD sentiment.
Euro Gains Momentum on Strong PMI Data but Faces Dovish ECB Outlook
The shared currency has gained strength after encouraging economic data from the Eurozone. On the data front, the Hamburg Commercial Bank (HCOB) reported that the preliminary Composite Purchasing Managers Index (PMI), compiled by S&P Global, improved in January, rising to 50.2 from 49.6 in November.
This marks a return to growth after two months of contraction. Economists had expected the PMI to decline slightly to 49.7, but the better-than-expected data suggests cautious optimism for the region’s economy.
The report showed strong demand for labor and new business growth in the services sector, though the manufacturing sector still faces issues like layoffs and declining orders. Dr. Cyrus de la Rubia, Chief Economist at HCOB, said the start of the year is "mildly encouraging," with cautious growth in the private sector.
Although the positive PMI has helped the Euro in the short term, its overall outlook remains uncertain. The European Central Bank (ECB) is expected to lower its Deposit Facility rate by 25 basis points to 2.75% in its upcoming meeting. As inflation is expected to ease, the ECB may continue its cautious approach, limiting the Euro's long-term growth.
US Dollar Weakens Amid Trade Deal Hopes and Fed Policy Anticipation
On the US front, the broad-based US Dollar has weakened amid increasing bets of rate cuts. The US Dollar Index (DXY), which tracks the Dollar’s value against six major currencies, fell 0.6% on Friday, hitting a fresh five-week low near 107.45.
This decline followed remarks from former President Donald Trump, who suggested he could reach a trade deal with China without imposing heavy tariffs.
During his election campaign, Trump had threatened to impose 60% tariffs on China and 25% on other North American economies, which supported the Dollar's earlier strength.
However, his recent comments about a potential deal have reduced market fears of aggressive trade measures.
Trump’s statement at the World Economic Forum (WEF) in Davos, where he endorsed immediate interest rate cuts, further pressured the Dollar.
His remarks, along with easing trade tension expectations, shifted market sentiment and weighed on the Greenback.
Looking ahead, the Federal Reserve’s upcoming monetary policy decision on Wednesday will be a key event for the US Dollar.
While the Fed is expected to keep interest rates steady at 4.25%-4.50%, Fed Chair Jerome Powell’s statements will be closely analyzed for alignment with Trump’s views.
EUR/USD – Technical Analysis
EUR/USD is trading at $1.04517, up 0.35%, as the pair continues to exhibit a bullish bias above the pivot point of $1.04324.
The currency pair is facing immediate resistance at $1.04971, with the next key levels to watch at $1.05329 and $1.05682. A break above these resistance zones could reinforce bullish momentum, potentially pushing the pair toward higher levels.
On the downside, immediate support is situated at $1.03721, with further safety nets at $1.03415 and $1.03012. The 50-day Exponential Moving Average (EMA) at $1.03986 provides dynamic support, suggesting that the short-term trend remains favorable for the bulls.
Holding above this level could further cement the bullish outlook, encouraging buyers to test higher resistance levels.
From a technical perspective, the upward movement is supported by improving sentiment and technical strength, with the pair maintaining its position above key support levels.
However, if EUR/USD fails to hold above the pivot of $1.04324, it could invite selling pressure, potentially driving prices toward immediate support levels.
Traders should closely watch the resistance at $1.04971, as a sustained move above this threshold could confirm further bullish sentiment. Conversely, a break below the pivot may expose the pair to further downside risk.
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