EUR/USD Price Forecast: Next on the upside comes the YTD peaks

The Euro (EUR) advanced further on Wednesday, with EUR/USD climbing toward two-week highs in the 1.1360-1.1370 band and supported further by the intense pullback in the US Dollar (USD).

On the latter, the US Dollar Index (DXY) broke below its critical contention zone around the 100.00 level amid mounting concerns over US fiscal policy as investors followed developments around President Trump’s tax bill.

Trade hopes provide limited lift

Meanwhile, the pair has regained balance as of late following a declining price action in the US Dollar. Markets initially welcomed a tentative US–China trade agreement unveiled on May 10, which included a tariff rollback from over 100% to 10% and a 90-day pause on further hikes. However, a 20% duty on fentanyl-linked imports remains in place, leaving the effective tariff burden around 30%.

Despite upbeat rhetoric from President Trump and recent trade moves with the UK, the lack of detailed follow-through has undermined the Dollar’s upside and offered renewed support for the single currency and other risk-sensitive assets.

Fed–ECB divergence remains a key driver

Monetary policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB) continues to shape EUR/USD price action.

While the Fed has held rates steady and remains cautious about near-term cuts, market pricing still reflects expectations for two rate cuts by year-end, driven by subdued April inflation and fading trade risks.

In contrast, the ECB cut its deposit rate by 25 bps to 2.25% last month and could ease further in June. Still, policymakers remain cautious. Isabel Schnabel reaffirmed the ECB’s commitment to bringing inflation back to target, but warned that external risks, such as trade tensions, could complicate the outlook. Klaas Knot echoed this sentiment, suggesting it’s too early to commit to a June cut without clearer evidence on inflation drivers.

Earlier on Wednesday, (mega dove) ECB official Mario Centeno said the bank might have to cut its key interest rate below the estimated neutral range of 1.50% to 2.00% to prevent inflation from slipping beneath its 2% target, given the economy’s fragile condition.

Speculative interest remains Euro supportive

CFTC data for the week ending May 13 showed net long positions in the EUR rising to around 84.7K contracts, its highest level in months, while total open interest surpassed 750K contracts for the first time since December 2023. Commercial players, meanwhile, remained net short, suggesting continued caution among institutional investors.

Technical picture: Bulls have work to do

Further upside in EUR/USD should challenge its 2025 high of 1.1572 (April 21), seconded by the 1.1600 milestone, and the October 2021 high at 1.1692 (October 28)

On the downside, interim contention sits at the 55-day SMA at 1.1105, ahead of the May low of 1.1064 (May 12), and the psychological 1.1000 level. The loss of the latter could put a test of the 200-day SMA at 1.0803 back on the investors’ radar.

Momentum indicators paint a mixed picture. The Relative Strength Index (RSI) has edged above 58, hinting at a bullish tone, while the Average Directional Index (ADX) near 27 suggests the trend is still in place but may be losing traction.

EUR/USD daily chart

Outlook

EUR/USD is likely to remain volatile in the near term, as markets weigh diverging central bank paths, speculative positioning, and ongoing geopolitical and political uncertainty. While the Euro remains supported by flow dynamics and relative resilience, further gains may require greater clarity on trade policy and central bank intentions.