EUR/USD Price Forecast: Caution trade kicks in pre-NFP

EUR/USD continued to recover ground lost at the beginning of the week, climbing well past the 1.0400 mark and gaining more than 2 cents since Monday’s multi-week lows. The continued rebound was largely due to further losses in the US Dollar, which saw the US Dollar Index (DXY) break below the 108.00 support quite convincingly and hit multi-day lows.

The decline in the Greenback coincided with fresh developments in President Trump’s tariff plans. While he has delayed the 25% tariff on Canadian and Mexican goods, the 10% tariff on Chinese imports remains in place. The increasing uncertainty and lack of further details around trade policies from the White House have been motivating investors to unwind long USD positions, adding to the ongoing weakness in the currency.

Despite the weakness in the dollar, this tariffs narrative is expected to support it in the long run and play a key role in the bullish outlook for the currency over the coming year.

Central Banks Under Scrutiny

Central banks are now in the spotlight. Last week, the Federal Reserve (Fed) decided to keep interest rates unchanged, leaving the market guessing when the next rate cut might come. Even though the US economy is growing robustly—with strong growth, persistent inflation, and low unemployment—the Fed is treading cautiously. Recently, it shifted from noting some progress in inflation to describing price pressures as “elevated.” By keeping the federal funds rate at 4.25%-4.50%, the Fed signals a wait-and-see approach amid concerns about the effects of Trump’s trade and fiscal policies.

Across the Atlantic, the European Central Bank (ECB) met expectations by cutting interest rates by 25 basis points. The ECB also hinted at more easing in the future. Despite sluggish growth in the eurozone, optimism remains that inflation will eventually ease. With inflation above the ECB’s 2% target, the rate cut was seen as necessary. During her press conference, President Christine Lagarde emphasized that while the ECB’s decisions are data-driven, there’s no plan to push rates below neutral levels or to take drastic measures like a 50 basis point cut—instead, they’re proceeding cautiously with the current 25 basis point reduction. Lagarde expressed confidence that the eurozone could hit the 2% inflation target by 2025, though she warned that rising global trade tensions might slow economic growth in the near term.

Who Benefits in a Trade War?

Tariff tensions, particularly those spurred by US policy, could complicate the Euro’s path as well as the broader market landscape. Prolonged tariffs might drive up US inflation and force the Fed into an even more hawkish stance, potentially strengthening the dollar and putting pressure on its competitors. This dynamic could eventually push EUR/USD back toward the key parity level sooner rather than later.

Technical Snapshot

From a technical perspective, EUR/USD appears to have abandoned the area of recent lows near 1.0200. The pair found initial support at the weekly low of 1.0209 (recorded on February 3). If this level breaks, we might see the pair drop toward 1.0176, which was the lowest point in 2025. On the upside, resistance is seen at 1.0532 (the highest level year-to-date from January 27), with further barriers at 1.0629 (the December peak) and the 100-day Simple Moving Average at 1.0645.

Momentum indicators add a note of caution as well. The Relative Strength Index (RSI) has bounced back to around 49, hinting at strengthening momentum, while the Average Directional Index (ADX) near 21 suggests that the current trend might be losing some steam.

The Road Ahead for the Euro

Looking forward, the euro faces several challenges. The continued resilience of the US Dollar, differing approaches by the ECB and the Fed, and structural issues within the eurozone—such as Germany’s slowing economy—could all hinder the euro’s ability to sustain gains. While short-term rallies are possible, the overall outlook for the single currency remains uncertain.