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.

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🌍 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	—	—

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🛑 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.

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🇪🇺 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.

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📊 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).

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🔮 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.

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🏁 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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