EUR/USD Forecast: Bulls eye 1.20 as dollar weakness persists

• EUR/USD forecast remains bullish, with momentum pointing towards 1.20
• Political turbulence in France has had little lasting impact on the euro
• FOMC meeting and US data releases will be the key drivers for the pair this week

 

What doesn’t break you makes you stronger – and that’s certainly true for the euro right now. Despite ongoing political turmoil in France, the single currency continues to hold its ground, with investors seemingly unfazed about the risk of contagion across Europe. Much of the recent strength in the EUR/USD forecast has been driven more by a softer US dollar than by eurozone resilience, but the net effect is clear: the pair is in a healthy uptrend, and I wouldn’t be surprised to see it heading for $1.20 soon – barring any unexpected shocks.

 

 

French Politics and Market Sentiment

 

Interestingly, Fitch’s downgrade of France’s credit rating late on Friday didn’t spook markets. The move was well anticipated and already priced into French bonds. The bigger question is whether Prime Minister Sébastien Lecornu can unite a divided National Assembly to deliver much-needed fiscal reforms. This remains a domestic challenge for France rather than a eurozone-wide issue, so I don’t see it turning into a broader crisis.

 

Eurozone trade data was uninspiring, reflecting weaker exports – not just to the US (possibly due to tariffs) but also to China, suggesting that a global slowdown may be weighing on demand. More data will be needed to confirm whether this is a trend.

 

EUR/USD forecast: All eyes on Fed

 

The main event for the EUR/USD forecast this week is Wednesday’s FOMC decision. Markets are widely expecting a 25bp rate cut, with two more pencilled in for later this year. At present, traders are pricing in around 65-70bp of easing – leaving room for further dollar weakness if the Fed signals more cuts or hints that a 50bp move was on the table at this week’s meeting.

 

US data will play a supporting role, with retail sales on Tuesday, housing data mid-week, and jobless claims on Thursday. The Empire State Manufacturing Index, released earlier today, provided yet another evidence of a slowing economy with a print of -8.7 vs. +4.3 eyed, down sharply from +11.9 last.

 

With the dollar under pressure and technicals pointing higher, the EUR/USD bulls may get their wish for 1.20 sooner rather than later.

 

EUR/USD Technical View: Bulls in Control

 

Technically, EUR/USD forecast remains firmly in a bullish phase. The pair has been steadily grinding higher, and last week’s breakout above the 1.17 level was significant. Price action continues to form higher highs and higher lows, trading comfortably above key moving averages and trendlines. For now, there’s little point in fighting the trend, which means traders may be better off focusing on identifying dip-buying opportunities.

 

 

The break above the short-term bearish trendline on the EUR/USD chart has opened the door for a move towards the July peak at 1.1830, with last week’s high of 1.1780 acting as the near-term target. Beyond that, the psychological 1.1900 and then 1.2000 levels remain on the radar.

 

On the downside, support is seen first at 1.1700, the previous breakout level, with a further cushion between 1.1560 and 1.1620. Importantly, the pair is still holding above its rising trendline, which keeps the bias tilted to the upside.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R