The EUR is gaining due to a weaker USD and expectations of increased European government spending. The currency has remained below its short-term fair value of 1.0845 amid narrowing rate differentials between the eurozone and the US.
Recent spot gains above 1.0530 indicate bullish momentum. If these gains persist through the close, the EUR could advance towards the 1.0650/1.0750 range, with the 200-day moving average at 1.0722 serving as a target.
Impact Of US Dollar Weakness
These movements in the currency markets are not happening in isolation. The US dollar has been losing ground largely because traders expect the Federal Reserve to maintain or even ease policy rather than tightening further. Meanwhile, speculation about increased European government spending is giving the euro support, as fiscal expansion could help growth and inflation prospects in the region.
Despite the euro’s appreciation, it remains below what we estimate as its short-term fair value of 1.0845. This level is derived from a combination of factors, including interest rate differentials, investor positioning, and macroeconomic indicators. The narrowing gap between yields in the eurozone and the US has contributed to this steadiness, preventing either currency from pulling sharply away from the other.
The fact that spot prices have climbed above 1.0530 suggests that momentum is in favour of further gains. This threshold had previously served as a barrier, limiting upside movement, but now that it has been cleared, traders are watching closely to see if the market can sustain levels above it. If the euro remains elevated through the daily close, we could see a push higher towards the range of 1.0650 to 1.0750.
A key reference point would be the 200-day moving average, which currently stands at 1.0722. This is frequently monitored by market participants as a measure of long-term directional bias. If prices can break and hold above this level, it would reinforce the bullish case and potentially encourage more positioning in favour of the euro.
Policy Outlook Considerations
As these trends unfold, monitoring how the Federal Reserve and the European Central Bank communicate their policy outlooks will be essential. Any signs that US policymakers might hold rates steady for longer than expected could slow down the dollar’s decline. Similarly, discussions about fiscal policies in Europe could influence whether the euro sustains its upward movement. These factors create a dynamic environment where price levels and momentum patterns play a decisive role in positioning strategies.
