The Euro Retains All the Prerequisites for Growth

[Ben Graham]

The European currency continues to show strong potential for growth. On one hand, it is supported by expectations that the Federal Reserve will ease its monetary policy. On the other hand, the European Central Bank's firm stance on interest rates also opens the door for new highs for the euro against the US dollar.

The influence of these factors, however, should not be viewed separately from the broader economic picture. The European economy is showing signs of slowing, which could put pressure on the ECB in the future, forcing it to also consider loosening its policy. However, as long as inflation remains slightly above target levels, the ECB will adhere to a restrictive approach, which in turn will continue to support the euro.

A key factor that will determine the future trajectory of the European currency is the difference in economic growth rates between Europe and the United States. If the US economy begins to recover faster than the European one, this will put pressure on the euro against the dollar. Otherwise, positive sentiment toward the euro will persist.

One should also not forget the easing of geopolitical risks, which may significantly affect exchange rates. Any signs of an end to the conflict in Ukraine could trigger a shift by investors into riskier assets such as the euro and the British pound, which would undoubtedly affect the dollar.

Overall, the outlook for the euro appears quite favorable in the short term. However, long-term dynamics will largely depend on the ability of the European economy to adapt to changing conditions and on the decisions made by the ECB in response to economic challenges. Investors should closely monitor macroeconomic indicators and central bank statements in order to make well-informed decisions.

As for the current technical picture of EUR/USD, buyers now need to focus on breaking above the 1.1615 level. Only this will allow them to aim for a test of 1.1635. From there, the pair could climb to 1.1655, though doing so without support from major market players will be quite difficult. The furthest target is the 1.1675 high. In case the trading instrument declines, I expect significant buyer activity only around 1.1585. If no one steps in there, it may be wise to wait for a renewal of the 1.1560 low or to open long positions from 1.1530.

Regarding the current technical picture of GBP/USD, pound buyers need to break through the nearest resistance at 1.3240. Only this will allow them to target 1.3265, above which a breakout will be quite difficult. The furthest target is the 1.3300 level. If the pair falls, the bears will attempt to regain control at 1.3210. If they succeed, a breakout of this range will deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3185 low with a potential move to 1.3155.

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