EUR/USD Price Forecast: Further advances need a sustained breakout of 1.0500
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UPGRADE- EUR/USD reversed recent weakness and rose above1.0500.
- The US Dollar traded on the defensive on US economy concerns.
- The German economy contracted 0.2% in the last quarter of 2024.
EUR/USD added to Monday’s slight gains and revisited the area north of 1.0500 the figure on the back of the renewed and quite marked pullback in the US Dollar (USD).
Indeed, fresh weakness facing the Greenback re-emerged in response to market participants’ reassessment of the health of the US economy, particularly in light of the loss of momentum observed in some key fundamentals as of late.
That said, the US Dollar Index (DXY) navigated the low-106.00s and close to its recent multi-week lows despite intense concerns over US tariffs and amid a widespread move lower in US yields.
Tariffs remain a key concern
The likelihood of further announcements regarding tariffs weighed on sentiment on Tuesday, as the deadline for the implementation of tariffs on US imports from Canada and Mexico loomed closer and President Trump emphasised that these tariffs “would proceed as scheduled”.
Tariffs could prompt both gains and losses in currency markets. If tariffs drive up US inflation, the Fed may keep a hawkish stance for longer, supporting the US Dollar. However, if trade barriers ultimately slow economic activity, the Fed might resume a more dovish outlook. Meanwhile, if the US decides to impose tariffs on EU goods, it could add pressure on the European currency and therefore put EUR/USD under extra downside pressure, perhaps paving the way for a drop to the parity zone.
Central banks continue to shape market sentiment
The Federal Reserve recently held rates steady at 4.25%–4.50%, pointing to solid US economic growth, persistent inflation, and a strong labour market.
During his congressional testimony, Fed Chair Jerome Powell emphasised that it’s too early to discuss rate cuts, citing inflation and employment data as key guides for policy.
Minutes from the latest FOMC meeting reflected officials’ concern about tariffs, particularly if companies pass on higher costs to consumers. Policymakers also noted that ongoing trade disputes, geopolitical events, and robust consumer spending could keep inflation elevated, suggesting the Fed might not pivot toward rate cuts until inflation moves closer to the 2% target.
Meanwhile, the European Central Bank (ECB) cut its main rate by 25 basis points to stimulate the eurozone’s sluggish economy.
ECB President Christine Lagarde brushed off suggestions for a bigger 50-point cut, opting for a gradual, data-based approach. Although trade uncertainties remain, she expressed optimism that inflation would reach the ECB’s target by 2025, indicating a measured pace for any additional easing.
Earlier on Tuesday, Governing Council members Isabel Schnabel questioned the restraining effect of its 2.75% deposit rate on the euro zone economy, while Joachim Nagel viewed the price outlook as encouraging, suggesting further cuts if inflation drops to the 2% target this year.
Technical levels to watch
A continued climb might see EUR/USD test 1.0527 (February 24 high), then 1.0532 (2025 top from January 27), followed by the 100-day Simple Moving Average at 1.0542, and eventually December’s high at 1.0629.
On the downside, the first support lies at 1.0282 (February 10 weekly low), then 1.0209 (February 3 monthly low). A break below that could target 1.0176, the 2025 low from January 13.
Technical signals, however, remain mixed: the Relative Strength Index (RSI) near 59 points to a pick-up of bullish momentum, while an Average Directional Index (ADX) reading below 14 suggests a weak overall trend.
EUR/USD daily chart
Outlook
In the near term, EUR/USD will likely remain caught between shifting trade policies, divergent central bank moves, softer eurozone growth, and Germany’s political landscape. Without clearer signs on tariffs or more definitive guidance from the Fed and ECB, the Euro’s (EUR) direction is uncertain, at least in the short-term horizon.
- EUR/USD reversed recent weakness and rose above1.0500.
- The US Dollar traded on the defensive on US economy concerns.
- The German economy contracted 0.2% in the last quarter of 2024.
EUR/USD added to Monday’s slight gains and revisited the area north of 1.0500 the figure on the back of the renewed and quite marked pullback in the US Dollar (USD).
Indeed, fresh weakness facing the Greenback re-emerged in response to market participants’ reassessment of the health of the US economy, particularly in light of the loss of momentum observed in some key fundamentals as of late.
That said, the US Dollar Index (DXY) navigated the low-106.00s and close to its recent multi-week lows despite intense concerns over US tariffs and amid a widespread move lower in US yields.
Tariffs remain a key concern
The likelihood of further announcements regarding tariffs weighed on sentiment on Tuesday, as the deadline for the implementation of tariffs on US imports from Canada and Mexico loomed closer and President Trump emphasised that these tariffs “would proceed as scheduled”.
Tariffs could prompt both gains and losses in currency markets. If tariffs drive up US inflation, the Fed may keep a hawkish stance for longer, supporting the US Dollar. However, if trade barriers ultimately slow economic activity, the Fed might resume a more dovish outlook. Meanwhile, if the US decides to impose tariffs on EU goods, it could add pressure on the European currency and therefore put EUR/USD under extra downside pressure, perhaps paving the way for a drop to the parity zone.
Central banks continue to shape market sentiment
The Federal Reserve recently held rates steady at 4.25%–4.50%, pointing to solid US economic growth, persistent inflation, and a strong labour market.
During his congressional testimony, Fed Chair Jerome Powell emphasised that it’s too early to discuss rate cuts, citing inflation and employment data as key guides for policy.
Minutes from the latest FOMC meeting reflected officials’ concern about tariffs, particularly if companies pass on higher costs to consumers. Policymakers also noted that ongoing trade disputes, geopolitical events, and robust consumer spending could keep inflation elevated, suggesting the Fed might not pivot toward rate cuts until inflation moves closer to the 2% target.
Meanwhile, the European Central Bank (ECB) cut its main rate by 25 basis points to stimulate the eurozone’s sluggish economy.
ECB President Christine Lagarde brushed off suggestions for a bigger 50-point cut, opting for a gradual, data-based approach. Although trade uncertainties remain, she expressed optimism that inflation would reach the ECB’s target by 2025, indicating a measured pace for any additional easing.
Earlier on Tuesday, Governing Council members Isabel Schnabel questioned the restraining effect of its 2.75% deposit rate on the euro zone economy, while Joachim Nagel viewed the price outlook as encouraging, suggesting further cuts if inflation drops to the 2% target this year.
Technical levels to watch
A continued climb might see EUR/USD test 1.0527 (February 24 high), then 1.0532 (2025 top from January 27), followed by the 100-day Simple Moving Average at 1.0542, and eventually December’s high at 1.0629.
On the downside, the first support lies at 1.0282 (February 10 weekly low), then 1.0209 (February 3 monthly low). A break below that could target 1.0176, the 2025 low from January 13.
Technical signals, however, remain mixed: the Relative Strength Index (RSI) near 59 points to a pick-up of bullish momentum, while an Average Directional Index (ADX) reading below 14 suggests a weak overall trend.
EUR/USD daily chart
Outlook
In the near term, EUR/USD will likely remain caught between shifting trade policies, divergent central bank moves, softer eurozone growth, and Germany’s political landscape. Without clearer signs on tariffs or more definitive guidance from the Fed and ECB, the Euro’s (EUR) direction is uncertain, at least in the short-term horizon.
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