The EUR/USD pair is regaining momentum, edging toward the 1.0500 level in early European trading on Tuesday. Despite mixed German election results, the euro is capitalizing on a renewed US dollar decline, fueled by improving risk sentiment. Investors now focus on the ECB’s Q4 Negotiated Wages Report and upcoming inflation data to determine the euro’s short-term trajectory.
📊 EUR/USD Technical Outlook – Key Levels to Watch
A sustained break above 1.0500 could trigger a further rally toward:
- 1.0527 – February 24 high
- 1.0532 – 2025 peak from January 27
- 1.0547 – 100-day Simple Moving Average (SMA)
- 1.0629 – December 2024 high
Conversely, if sellers gain control, the critical support levels include:
- 1.0282 – February 10 weekly low
- 1.0209 – February 3 monthly low
- 1.0176 – 2025 bottom from January 13
🔍 Technical Indicators Overview:
- RSI (Relative Strength Index) is near 56, signaling mild bullish momentum.
- ADX (Average Directional Index) remains below 14, suggesting a lack of strong directional conviction.
🌍 Fundamental Analysis – Key Market Drivers
📢 High-Impact Economic Events – February 25, 2025
| Time (GMT+2) | Event | Forecast | Previous |
|---|---|---|---|
| 07:00 | 🇪🇺 Eurozone GDP YoY | -0.2% | -0.2% |
| 07:00 | 🇪🇺 Eurozone GDP QoQ | -0.2% | -0.2% |
| 10:00 | 🇪🇺 ECB Negotiated Wages (QoQ) | 5.42% | N/A |
| 13:00 | 🇪🇺 ECB Schnabel Speech | — | — |
| 14:00 | 🇺🇸 S&P/Case-Shiller Home Price Index (YoY) | 4.5% | 4.3% |
| 14:00 | 🇬🇧 BoE’s Pill Speech | — | — |
🛑 US Dollar Weakness Continues – What’s Driving It?
The US dollar index (DXY) remains under pressure, trading below 107.00, reflecting market uncertainty over Federal Reserve policy and potential tariff escalations.
💡 Key Developments Affecting the USD:
- Fed’s Interest Rate Stance: The central bank remains cautious about rate cuts despite solid economic growth and stubborn inflation. Fed Chair Jerome Powell reiterated that it’s “too soon” to consider monetary easing.
- Inflation Risks from Tariffs: The Biden administration’s 10% tariffs on Chinese imports are already in place, but investors remain wary of potential 25% tariffs on Canada and Mexico.
- US Business Activity Slowdown: The latest PMI data revealed sluggish US business activity, with cost pressures rising due to supply chain concerns and policy uncertainties.
🇪🇺 ECB vs. Fed – Diverging Policies Shape EUR/USD Outlook
The European Central Bank (ECB) took a dovish approach, cutting rates by 25 basis points to stimulate sluggish eurozone growth. However, ECB President Christine Lagarde remains cautious, emphasizing a data-driven strategy for future rate moves.
📉 Impact on EUR/USD:
- If the ECB signals further rate cuts, the euro could weaken, pulling EUR/USD lower.
- If the Fed maintains its hawkish stance, the dollar could recover, capping EUR/USD gains.
📊 Market Sentiment – Winners & Losers from Tariff Uncertainty
✅ Potential Beneficiaries:
- Gold Prices (XAU/USD): Investors flock to gold as a safe-haven, pushing prices near $3,000 per ounce.
- Eurozone Equities: European stocks gained as Germany’s political stability reassured investors.
❌ Potential Losers:
- US Manufacturing Sector: Higher import costs from tariffs could squeeze corporate profits.
- Emerging Markets: Trade uncertainty could weigh on risk-sensitive currencies like the Mexican peso (MXN) and Chinese yuan (CNY).
🔮 EUR/USD Forecast – What’s Next?
📈 Bullish Scenario:
- A break above 1.0500 could accelerate gains toward 1.0547 and 1.0629.
- Improved risk sentiment, weak US economic data, and a dovish Fed outlook could support euro buying.
📉 Bearish Scenario:
- A drop below 1.0282 would signal renewed downside pressure, targeting 1.0209 and 1.0176.
- Hawkish Fed rhetoric and higher inflation readings could strengthen the US dollar, dragging EUR/USD lower.
🏁 Final Thoughts
The EUR/USD pair remains at a critical juncture, balancing US inflation risks, Federal Reserve rate expectations, and European economic weakness. As market participants await US and ECB policy updates, the 1.0500 level will be a key battleground for traders.
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