Euro and British Pound Forecast | EUR/USD and GBP/USD Analysis

What to Know

• EUR/USD is consolidating around the 1.18 level, with 1.17 acting as key support and 1.19 as near-term resistance.
• GBP/USD is trading near its 50-day EMA at 1.35, with the pair caught between 1.34 support and 1.36 resistance.
• Recent Federal Reserve policy decisions and interest rate expectations remain the primary drivers for both pairs.
• A stronger US dollar could pressure the euro and pound, while global economic resilience would support upside momentum.

EUR/USD

The euro has been very back and forth during the early hours on Tuesday, as we continue to dance around the crucial 1.18 level. The 1.18 level had previously been significant resistance but did not offer the type of support that one would have expected on the way back down. That being said, you cannot read too much into it mainly due to the fact that we have had so many central bank announcements over the last week or so that volatility and choppiness would have been expected.

At this point, there are a lot of questions as to whether or not the pair can continue to go higher, but the technical analysis still suggests that we are bullish, and if we can break to the upside the 1.19 level will be your next major barrier. Breaking above that level then opens up the possibility of reaching the 1.20 level. On the downside, there is a significant amount of support near the 1.17 level, especially as it is now backed up by the 50 Day EMA, an indicator that a lot of people will be watching.

Remember, we had previously been consolidating between the 1.16 level at the bottom, and the 1.25, with a bit of a dip to the 1.14 level for a very short amount of time. In other words, the market has been sideways for a while, at least until recently. The question at this point in time will be whether or not the momentum can continue.

GBP/USD

The British pound has gone back and forth during the early hours here on Tuesday, as we are dancing around the 50 Day EMA, which is also at the 1.35 level. The market is currently in the middle of the range that we had been in with the 1.34 level on the bottom offering support, with the 1.36 level above offering resistance. In other words, we are directly in the middle of the overall range, meaning that this pair is fairly neutral. That being said, this is much like the euro in the sense that we had recently shot higher but could not keep that momentum. We are going to have to start asking questions as to whether or not that actually means something.

Federal Reserve and Economic Trajectory

Last week, the Federal Reserve cut interest rates by 25 basis points but were not as dovish as a lot of people had anticipated. The idea that the Federal Reserve is going to cut interest rates to more times between now and the end of the year is still the expectation, but it wasn’t exactly like the Federal Reserve Chairman agreed with that completely. Whether or not that ends up happening remains to be seen, but then the question becomes “Is there something worth going on with the US economy?” If there is, there is the old expression “When the US sneezes, the world catches a cold.” That always ends up being the case.

If the global economy ends up showing signs of problems, the reality is that the US dollar almost always catches a bit of a bid, and we could see both of these pairs dropped rather drastically. While I don’t necessarily see that being the case quite yet, the Federal Reserve suddenly cutting rates aggressively would perhaps send a bit of panic into the market, driving the US dollar up as traders run to the US Treasury market. On the other hand, if the global economy ends up being fairly robust, the trends in both of these currency pairs to the upside should continue.

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