The Current State of EUR/USD
The Euro (EUR) faced a setback on Thursday, leading to a decline in EUR/USD after struggling to surpass the 1.1400 level earlier in the day. This reversal was driven by a resurgence in the US Dollar (USD) as the US Dollar Index (DXY) climbed to the 99.70-99.80 range, supported by an uptick in US yields across various timeframes.
Trade Tensions Impacting the Market
President Trump’s recent tariffs on trading partners, including extra duties on specific regions and Chinese goods, have created uncertainty in the market. While there was a temporary pause on tariffs for countries that choose not to retaliate, the overall trade tensions remain high. European officials have also expressed readiness to respond if necessary.
Central Bank Actions and Outlook
The Federal Reserve (Fed) opted to maintain rates at a range of 4.25%-4.50%, with Chair Jerome Powell highlighting concerns about slower growth, tariff-related inflation risks, and potential rate cuts later in the year. On the other hand, the European Central Bank (ECB) implemented a 25bp rate cut, bringing the deposit rate down to 2.25%.
While the Fed remains cautious about near-term rate cuts, the ECB’s decision signals a more dovish approach, with expectations of further easing in the future. Market participants are now anticipating another 25 basis point cut at the June meeting.
Bets Positioning and Technical Analysis
Speculative positioning shows an increase in net-long euro contracts and hedge-fund net-shorts, indicating the potential for significant movements in either direction. From a technical standpoint, resistance levels for EUR/USD are identified at 1.1473 and 1.1498, while support levels are at 1.0753 and 1.0732.
Indicators like the Relative Strength Index (RSI) and Average Directional Index (ADX) suggest a healthy trend, with the RSI moving out of the overbought zone.
EUR/USD Outlook
Despite recent developments, EUR/USD is poised for further volatility as market sentiment shifts in response to policy updates, economic data releases, and trade-related news. Both the Fed and ECB are closely monitoring the situation, which could impact the currency pair’s future movements.
As investors navigate through these uncertain times, staying informed and monitoring key indicators will be crucial in making informed decisions.