EUR/USD Forecast: The Price Breaks the Two-Year Support Zone

EUR/USD has breached the support level at 1.05500, and selling momentum has strengthened the current downtrend in the chart.
The Federal Reserve (Fed) has emphasized slowing down the pace of interest rate cuts, a move that could be crucial in maintaining the strength of the U.S. dollar over the long term.

EUR/USD has recorded a 2% decline over the last five sessions, favoring the dollar and placing the euro in a sustained bearish zone. This selling pressure has intensified following the Fed’s recent decision, accompanied by neutral remarks regarding decisions for the upcoming year. This bearish pressure has pushed the price to break the crucial two-year support level at 1.0550.

Fed’s Remarks

In its final meeting of the year, the Fed reduced interest rates to a range of 4.25%-4.5%, down from the previous 4.5%-4.75% (a 25-basis-point cut). This adjustment aligns with efforts to stimulate the U.S. economy in early 2025.

However, Fed Chair Jerome Powell highlighted that although inflation has decreased significantly, it remains at elevated levels, making it challenging to achieve the central bank’s 2% target. Powell also stressed the need to proceed cautiously in future decisions,given that current projections place inflation at 2.5% for 2025, still far from the central bank’s target for the upcoming year.

In this context, the CME Group’s probability tool currently reflects a 91% chance that the Fed will keep rates unchanged at its next meeting, scheduled for January 29. And, for the 19-march decision, the probability stands in 53% of rates unchanged versus 43% of rate reduction. That said, now the market is seeing a neutral decision bias for next decisions which could help maintain higher interest rates, leading to a stronger dollar perspective. Remember that these probabilities could shift based on economic developments leading up to that date.

Interest Rate Probability Chart January - CME Group

Source: CmeGroup

Interest Rate Probability Chart March - CME Group

Source: CmeGroup

Given the context outlined, the Fed’s interest rate of 4.5% remains significantly higher than the European Central Bank (ECB) rate of 3.15%. This differential could continue to attract investment into U.S. fixed-income assets, increasing demand for the dollar and exerting selling pressure on the EUR/USD. This scenario will likely persist as long as the U.S. central bank maintains rates above 4%.

EUR/USD Technical Forecast

EUR/USD has maintained a steady downtrend since late September, reaching a minimum price in the 1.03 range. Recent U.S. monetary policy events have strengthened the dollar, once again driving the price close to these lows not seen since November.

Source: StoneX, Tradingview

Downtrend Channel: The current downtrend channel favoring the dollar remains intact, with no significant bullish breakout threatening the formation. However, it’s important to note that the recent low at 1.03 remains a relevant support level that could trigger bullish corrections as the channel evolves. This level also represents the last low within the downtrend channel, and further lower lows are required to avoid a lateral consolidation in the short term.
RSI: The RSI indicator remains below 50, signaling that bearish momentum dominates the market in the short term. However, the RSI line is near an oversold zone, around the 20 level, which could indicate potential exhaustion of the bearish momentum and open the door for bullish corrections near the closest support level (1.03).
Key Levels:
1.03: The current support level corresponds to areas of indecision that served as a barrier in 2023. A drop below this level could lead to new lows in the current downtrend and reinforce the bearish bias.
1.05500: This is the new resistance zone, coinciding with the lower boundary of the lateral range maintained during 2024. It also converges with the upper line of the downtrend channel and the Ichimoku cloud, further reinforcing its importance as a barrier. Movements above this level could weaken the current downtrend and threaten the channel formation.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.