On Friday (January 16), the euro rose slightly against the dollar in early US trading, with other major non-US currencies also rising in tandem; while the dollar, after climbing for the past three weeks or so, retreated. Given the recent bullish trend of the dollar, it would be reasonable for the euro to weaken against the dollar in the afternoon.



Currently, there are few new catalysts to drive the euro higher, while the dollar is benefiting from a reassessment of the market's moderately hawkish expectations for US interest rates. With the potential for US intervention in Iran, and even Greenland-related turmoil, subsiding—at least for now—market attention has shifted back from geopolitics to the macroeconomic sphere. From a macroeconomic perspective, while there are no particularly dramatic developments, the signals remain clear: US economic growth remains robust, rather than experiencing strong expansion, and the dollar is capable of holding its ground during any short-term pullbacks. Against this backdrop, the euro/dollar exchange rate is likely to trade within a range, with a slight downward bias.

Can the US dollar continue its rebound?

The US dollar has gradually strengthened in recent weeks, largely due to a slight improvement in the macroeconomic environment. Recent US economic data has been generally positive—particularly retail sales and initial jobless claims figures—while the Federal Reserve's Beige Book indicates that the US economy is still expanding moderately and the labor market has not yet shown significant cracks. Against this backdrop, market expectations for US interest rates have been slightly revised upward, thus supporting the dollar.

Yesterday's latest initial jobless claims data was below 200,000, bringing the four-week moving average to its lowest level in two years, further confirming this market sentiment. This data indicates that the US labor market is only slowly cooling, characterized by "low hiring and low layoffs." Manufacturing data also unexpectedly improved, with both the New York Fed Manufacturing Index (7.7) and the Philadelphia Fed Manufacturing Index (12.6) exceeding market expectations. Overall, it's not surprising that the market has further lowered its probability of a Fed rate cut in the first quarter (currently around 20%), especially given the continued hawkish signals from Fed officials.

Today's economic data calendar is relatively light, and the moderate buying momentum in the US dollar is unlikely to reverse. However, there is a potential risk in the coming weeks: if the USD/JPY exchange rate touches the 160 level, various countries may take coordinated intervention measures to sell off the currency pair, and the US Treasury seems to support this move. For now, however, the dollar still has support during its pullback.

Euro: Lacking core driving factors

The volatility of the euro against the US dollar has decreased significantly, further reinforcing the view that the pair is likely to remain range-bound in the short term. Against a backdrop of lower volatility and increased demand for high-yield currencies and precious metals, investor interest in the relative stability of the euro has diminished. Coupled with a similarly light economic data calendar from the Eurozone, and lacking substantial drivers, the overall forecast for the euro/dollar exchange rate is slightly bearish.

EUR/USD Technical Forecast and Key Levels


(EUR/USD daily chart source: FX678)

Yesterday, the euro broke below the 1.1620-1.1635 support level against the US dollar, which has now become a key resistance area. Will the euro/dollar exchange rate begin a new downward trend from here? If it breaks below this resistance zone, the next downside target will be around 1.1580, near the 200-day moving average; if this level is breached, significant support will be difficult to find before the 1.1500 mark. In the current situation, only a breakout of the downward channel in the coming days will allow the euro/dollar exchange rate to potentially turn bullish.