EUR/USD Outlook: ECB and Energy Risks Limit Euro Upside

EUR Outlook: Central Bank Actions and Energy Risks Cap EUR/USD Upside

Eurozone Energy Dependence and Overvaluation Concerns Limit EUR/USD Gains

EUR/USD is facing headwinds in sustaining upward momentum as energy price import vulnerabilities and central bank policy actions cap gains. Analysts suggest the short-run fair value of EUR/USD is slightly below 1.1100, indicating limited upside potential for the euro, especially as market volatility remains elevated following recent oil price shocks.

“Breakouts above 1.1600 are stretched. As of now, EUR/USD breaks below 1.1640 would move it well beyond its three-standard-deviation upper limit,” noted analysts.

Oil Volatility and USD to Drive Short-Term Price Action

With Middle East tensions impacting oil markets, traders are closely watching crude price swings, which directly affect eurozone trade balance and inflation outlook. The US Dollar remains strong, further limiting EUR/USD bullish attempts.

Meanwhile, ZEW economic sentiment surveys due Tuesday and speeches from European Central Bank Governing Council members could influence short-term sentiment.

Central Banks in Focus: Key Decisions Ahead

This week features several European central bank rate decisions:

Riksbank (Wednesday): Expected to cut rates by 25 basis points, though the move is now uncertain due to rising oil prices.
Swiss National Bank (Thursday): Likely to ease by 25bps.
Bank of England and Norges Bank (Thursday): Expected to hold rates steady.

These decisions will shape the trajectory of European currencies, including EUR, SEK, CHF, and NOK, in the coming sessions.