Experts agree: Weak Dollar backs near-term upside in EUR/USD

The Euro (EUR) has seen a slight increase of 0.21% against the US Dollar (USD), trading at approximately 1.1710 on Friday during the European trading session. This marks the highest level for the Euro in over three months. The Euro's strength is attributed to the US Dollar (USD) underperforming due to various factors, including the US Treasury Department's decision to continue its bond-buying operations and the possibility of the Federal Reserve (Fed) adopting hawkish policies.

At press time, the US Dollar Index (DXY), which measures the Dollar's value against six major currencies, was down 0.17% to near 98.67. Analysts from ING believe that EUR/USD remains well-supported due to a benign decline in the Dollar, which benefits all currencies. Commerzbank argues that the Dollar is likely to face renewed pressure once the war with Iran concludes, as the Fed is expected to deliver less aggressive rate hikes in the future.

Their view is reinforced by the Dollar being significantly overvalued based on purchasing power parity, which indicates potential downside risks over the medium term. The Euro has been benefiting from the USD's weakness, with EUR/USD rising towards 1.17 as the Dollar continues to face pressure. The latest inflation data has further strengthened the Euro's appeal, with Eurozone inflation matching expectations.

In contrast, the Federal Reserve's future action remains unclear, influenced by recent economic data and upcoming mid-term elections. This uncertainty leaves the Dollar in a weaker position relative to the Euro. The EUR/USD is currently trading at 1.1703, surpassing the 20-period Exponential Moving Average (EMA) of 1.1561, which indicates a bullish near-term bias.

The Relative Strength Index (14) at 74.8 suggests that while buyers are in control, upside momentum may experience brief pauses or pullbacks. On the downside, immediate support can be found at the recent pivot around 1.1703, followed by the 20-period EMA near 1.1561, acting as a structural floor during a deeper retracement. Traders should watch for a move towards the May high near 1.1800.

The US Dollar (USD) is the official currency of the United States and the de facto currency in several other countries. It is the most heavily traded currency in the world, accounting for over 88% of global foreign exchange turnover, with an average of $6.6 trillion in transactions daily. The USD has been the world's reserve currency for most of its history, following the Second World War.