The EUR/USD pair is trading in positive territory around 1.1755 during early European trading hours on Friday. The European Central Bank (ECB) kept interest rates unchanged at its December policy meeting, and its forecasts indicate less urgency for further cuts, providing some support to the euro (EUR) against the US dollar (USD).
European Central Bank President Christine Lagarde stressed a data-driven, “meeting-by-meeting” approach. It also stated that the central bank is not pre-committing to any future interest rate path, although some economists expect rates to remain steady until 2026.
On the US dollar front, expectations that US President Donald Trump will appoint a dovish successor to Fed Chairman Jerome Powell, whose term ends in May, may drag the US dollar lower and create a tailwind for the major pair. Trump said he expects the next Fed chairman to keep interest rates low and never “disagree” with him. These comments are likely to increase concerns among investors and policymakers about the Fed’s independence.
Technical analysis:
On the daily chart, the EUR/USD pair is trading at 1.1755. The 100-day moving average is sloping higher at 1.1635, and the price is consolidating above it, maintaining a medium-term bullish bias. The RSI rises to 59.8, confirming improving momentum below overbought conditions. Staying above the moving average (EMA) would keep the upward trajectory intact.
The price is above the middle Bollinger band at 1.1738, while the bands are narrowing, indicating lower volatility after the recent recovery. The upper band at 1.1820 is capping the upside for now, and a daily close above it could extend gains; A pullback below the middle band would expose the lower band near 1.1655. In general, momentum and trend signals favor buy dips until volatility expands.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data for the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
