EUR/USD Eyes 1.0500 as US Dollar Weakness Persists – Key Technical & Fundamental Insights

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.

Stay tuned to DailyForex.pk for real-time updates on EUR/USD trends, forex market insights, and global financial analysis. 🚀📊

Yasher Rizwan