EUR/USD Price Forecast: Extra weakness appears in the pipeline

The Euro (EUR) added to the pessimistic kickstart to the week and slipped back to the proximity of the key contention zone at 1.0400, or two-day lows, on the back of the resurgence of the marked bid bias in the US Dollar (USD).

Indeed, on the latter, the Greenback regained composure in response to another bout of United States (US) threats to implement tariffs, while cautiousness prevailed surrounding DeepSeek news. Against that backdrop, the US Dollar Index (DXY) reclaimed the 108.00 mark and slightly above, reaching fresh weekly tops along with an acceptable recovery in US yields across the spectrum.

Meanwhile, speculation about President Donald Trump’s trade tariff policies continues to swirl, keeping investors on edge during a week dominated by key interest rate decisions from both the Federal Reserve (Fed) and the European Central Bank (ECB).

Central banks in the spotlight 

The Fed started its two-day meeting on Tuesday, with the CME Group’s FedWatch Tool showing a near-consensus expectation that the Fed will hold rates steady on Wednesday.

In addition, speculation that the bank might trim its interest rates by 50 basis points this year appears quite firm for the time being.

Monetary policy remains a major driver of the EUR/USD pair’s direction.

In the US, a stronger-than-expected December jobs report (+256K) briefly reassured markets. However, concerns linger as the Fed lowered rates to 4.25%–4.50% during its December meeting and signalled a cautious approach for 2025. Fed Chair Jerome Powell emphasised the need to tackle stubbornly high inflation while acknowledging signs of cooling in the labour market.

On the other side of the Atlantic, the European Central Bank (ECB) is also navigating its path forward. While the ECB is expected to cut rates further, its policymakers—led by President Christine Lagarde—are taking a measured approach to avoid overshooting the 2% inflation target or risking further economic slowdown.

The market is also closely watching Trump’s decision to delay imposing trade tariffs on the eurozone. While this has provided some short-term relief for the Euro, the spectre of future tariffs still looms large, potentially dragging on the bloc’s economy and currency.

Trade tariff tensions cloud the outlook 

Ongoing uncertainty around potential US trade tariffs is a wild card for EUR/USD. Should tariffs drive up US inflation, the Fed might adopt a more hawkish stance, which could strengthen the Dollar and pressure the European currency. In such a scenario, the psychologically critical parity level for EUR/USD could come back into focus.

EUR/USD Technical Outlook

The EUR/USD has immediate support around 1.0176, the year-to-date low reached on January 13, with a critical level at 1.0000 below that. On the upside, resistance is at the 2025 high of 1.0532 (January 27), followed by the December 2024 peak of 1.0629 and the provisional 100-day SMA of 1.0678.

For now, the larger negative trend will continue as long as the pair trades below the 200-day SMA at 1.0769. 

Short-term indicators present a mixed picture. The RSI drops to around 53, indicating some loss of momentum, however the ADX, which is below 26, indicates fading trend strength. 

EUR/USD daily chart

Challenges ahead for the Euro

Despite recent gains, the Euro faces significant challenges. The Greenback’s resilience, divergent central bank policies and structural issues within the eurozone—such as Germany’s economic slowdown and broader political uncertainties—pose serious headwinds. While short-term rallies are possible, sustained gains for the pair may remain elusive in this environment.

What’s next? 

All eyes are now on the Federal Reserve and the European Central Bank as they make their first major rate decisions of the year. Traders should also keep an eye on economic data, especially inflation updates and any fresh developments in trade policies. For EUR/USD, the battle between a weakening Greenback and the Euro’s internal challenges will likely dominate the narrative in the weeks to come.