US Dollar Forecast: EUR/USD Snaps Back Ahead of January Low

US Dollar Outlook: EUR/USD

EUR/USD snaps back ahead of the January low (1.0178) to extend the rebound from the weekly low (1.0211), and the exchange rate may appreciate over the remainder of the week as it carves a series of higher highs and lows.

US Dollar Forecast: EUR/USD Snaps Back Ahead of January Low

It seems as though EUR/USD will no longer respond to the negative slope in the 50-Day SMA (1.0419) after trading above the moving average for the first time since October, and the exchange rate may continue to retrace the decline from the January high (1.0533) as the unexpected downtick in the ISM Services survey warns of a slowing economy.

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In response, the Federal Reserve may further unwind its restrictive policy in 2025 to prevent a recession, and the central bank may retain the current course for US monetary policy as the ‘median participant projects that the appropriate level of the federal funds rate will be 3.9 percent’ at the end of this year.

US Economic Calendar

Nevertheless, the update to the US Non-Farm Payrolls (NFP) may keep the Federal Open Market Committee (FOMC) on the sidelines as the economy as anticipated to add 170K jobs in January, while the Unemployment Rate is expected to hold steady at 4.1% during the same period.

With that said, signs of a strong labor market may generate a bullish reaction in the US Dollar as it encourages the Fed to keep US interest rates on hold at its next meeting in March, but a weaker-than-expected NFP report may keep EUR/USD afloat as it fuels speculation for lower US interest rates in 2025.

With that said, the opening range for February remains in focus for EUR/USD as it extends the advance from the start of the week, but the exchange rate may struggle to extend the bullish price series should it fail to test the January high (1.0533).

EUR/USD Chart – Daily

Chart Prepared by David Song, Senior Strategist; EUR/USD on TradingView

EUR/USD bounces back ahead of the January low (1.0178) to trade back above 1.0370 (38.2% Fibonacci extension), with a break/close above the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone bringing the January high (1.0533) on the radar.
A break/close above the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region opens up the December high (1.0630), but EUR/USD may snap the bullish price series if it struggles to hold above 1.0370 (38.2% Fibonacci extension).
Failure to defend the monthly low (1.0211) may lead to a test of the January low (1.0178), with a close below 1.0200 (23.6% Fibonacci retracement) raising the scope for a move towards parity.

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--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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