- EUR/USD advanced for the second consecutive week and targets 1.1000.
- The US Dollar navigated the lower end of the range near recent lows.
- The Fed is expected to leave its interest rates unchanged next week.
EUR/USD enjoyed a broadly upbeat run this week, extending its strong recovery and briefly surpassing the 1.0900 handle to reach multi-month highs. Although the rally lost some momentum as the week wore on, the pair still ended with a solid performance on the weekly chart.
The German factor: “Whatever it takes 2.0”
Much of the Euro’s strength stemmed from encouraging developments in German politics.
In fact, Chancellor-in-waiting Friedrich Merz announced he had won over the Greens for a major borrowing initiative—clearing the way for the outgoing parliament to pass it next week. Merz’s conservative bloc and the Social Democrats had already proposed a €500 billion infrastructure fund alongside major borrowing reforms to bolster defense and jump-start growth in Europe’s largest economy. With the Greens now on board, they have the two-thirds majority needed to amend the constitution.
Merz defended the urgency of this package by pointing to shifting United States (US) policies under President Donald Trump, warning that a hostile Russia and an unreliable United States could leave Europe vulnerable. As part of the compromise, €100 billion of the proposed infrastructure fund will go toward climate action and economic transformation.
Trade turmoil and a volatile US Dollar
Lingering trade tensions also played a role in this week’s currency moves. President Trump’s unpredictable tariff policies continue to rattle markets, adding layers of uncertainty around the global economic outlook and the Federal Reserve’s (Fed) policy path.
After Canada and Mexico were given a temporary reprieve until April 2, the US administration threatened a 200% tariff on champagne and other European alcoholic beverages. This came in response to the EU’s plan to impose tariffs on $28 billion worth of US goods—including a 50% levy on whiskey—to counter American duties on steel and aluminum. Tariffs can fuel inflation and potentially nudge the Fed toward more aggressive tightening, but they can also dampen economic expansion—two competing forces that keep the Greenback’s trajectory murky.
Russia-Ukraine developments: A tailwind for the Euro
Meanwhile, the Euro has found support from hopeful signs of progress in Russia-Ukraine peace negotiations. Tensions cooled slightly after a high-stakes meeting between Presidents Trump and Zelenskyy. When geopolitical risks recede, markets often gravitate toward riskier assets—benefiting currencies like the Euro.
Central bank divergence
On the monetary policy front, the Fed has kept its target range at 4.25%–4.50%, with Chair Jerome Powell highlighting solid US fundamentals, subdued inflation, and a tight labor market. However, trade-related price pressures could complicate the central bank’s plans. Across the Atlantic, the European Central Bank (ECB) lowered key rates by 25 basis points and hinted it might ease further if uncertainty persists. Policymakers also trimmed Eurozone growth forecasts while slightly raising short-term inflation projections, although they still see inflation moderating by 2026.
Technical views
The first hurdle for EUR/USD sits at 1.0946 (March 11 high for 2025). A break above that exposes 1.0969 (23.6% Fibonacci retracement), followed by the psychological 1.1000 mark.
On the downside, the 200-day SMA at 1.0725 serves as initial support, followed by the 100-day SMA at 1.0518 and the 55-day SMA at 1.0458. Deeper floors emerge at 1.0359 (February 28 low), 1.0282 (February 10 low), 1.0209 (February 3 low), and 1.0176 (January 13 bottom for 2025).
The RSI hovers around the 70 yardstick, indicating a slight pullback from overbought territory, while the ADX near 30 suggests the uptrend remains firm.
EUR/USD daily chart
Short-term outlook
All told, EUR/USD appears well-positioned for further gains, underpinned by Germany’s policy breakthroughs and ongoing US Dollar volatility. However, the pair remains at the mercy of trade tensions, geopolitical headlines, and central bank developments—a trio of factors sure to keep traders on their toes.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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