The EUR/USD currency pair has shown signs of recovery after hitting a two-year low, attributed primarily to a modest decline in the US Dollar (USD). The recent market dynamics, particularly reports regarding gradual tariff increases under President-elect Donald Trump, have contributed to a decrease in US bond yields, further applying pressure on the USD and sparking some upward movement in the EURO .
After bouncing back from the lows of 1.0180 – 1.0175, which represent the weakest trading levels since November 2022, the EURO has received a second day of buying support. This uptick is tempered by the contrasting monetary policies of the Federal Reserve and the European Central Bank. The Fed remains hawkish, which suggests future rate hikes, while the ECB is likely to pursue a rate-cutting trajectory in response to economic challenges in the Eurozone.
Market sentiment has been buoyed by reduced concerns surrounding disruptive tariffs, reflected in a positive trend in equity markets. While this bolsters investor confidence, a looming Fed rate hike could provide a tailwind for USD strength, complicating the outlook for the EUR/USD pair. Additionally, recent robust US Nonfarm Payrolls data strengthens expectations that the Fed may pause its rate cuts, contrasting with the ECB’s ongoing efforts to address economic sluggishness.
Attention now shifts to the forthcoming US Producer Price Index, expected to impact USD demand and ultimately influence the direction of the currency pair. Subsequent US consumer inflation data will play a critical role in shaping the Fed’s policy decisions and the short-term trajectory of EUR/USD .
From a technical analysis perspective, the pair is facing resistance near the 1.0275 – 1.0280 level, corresponding with the 100-hour Simple Moving Average. For the EURO to maintain momentum, it must break through this barrier. Conversely, any decline below 1.0235 might lead to further weakness, potentially retesting previous lows around 1.0180 – 1.0175 and risking an extension of the established downtrend.
