The EUR/USD exchange rate has come under fresh downward pressure as investors continue to assess the consequences of a renewed trade conflict between the United States and Europe. The pair briefly declined to the psychological support level of 1.0900 before making a modest rebound to 1.0930.
This movement comes amid heightened expectations of monetary policy shifts in the eurozone and a volatile geopolitical backdrop that continues to weigh on market sentiment. In this article, Monovex breaks down the topic in detail.
Trade War Escalation and ECB’s Monetary Outlook
At the core of recent volatility in the EUR/USD pair is the looming trade conflict triggered by aggressive tariff announcements from the US President. The U.S. administration has imposed 25% tariffs on imported steel, aluminum, and vehicles from the EU. Additionally, a 20% tariff will be imposed on a broader range of goods, a move the administration describes as “reciprocal” in response to what it perceives as long-standing trade imbalances.
The European Union, while advocating for diplomatic solutions, has so far refrained from taking retaliatory steps. In a measured response, the head of the European Commission proposed a “zero-for-zero” approach, in which both sides would eliminate tariffs on specific categories of goods. This reflects Europe’s cautious approach aimed at de-escalating tensions while protecting its economic interests.
Nevertheless, European officials have signaled preparedness for countermeasures if talks collapse. The U.S. exports several key categories of goods to Europe, including pharmaceutical products, crude oil, natural gas, machinery, and automobiles. The imposition of EU counter-tariffs on these sectors could significantly impact American multinationals and trigger further currency fluctuations.
In response to the potential economic fallout, markets are increasingly pricing in further interest rate cuts by the European Central Bank (ECB). Analysts expect the ECB to act decisively during its April and June meetings to provide monetary stimulus to buffer the eurozone economy. Lower rates would weaken the euro, enhancing the global competitiveness of European exports while promoting lending and investment activity.
Key Catalysts Ahead: FOMC Minutes and Inflation Data
Beyond Europe, U.S. monetary policy developments remain crucial in driving the EUR/USD direction. The Federal Open Market Committee (FOMC) is set to release its meeting minutes, which are expected to shed light on the Fed’s current assessment of inflationary pressures and the future path of interest rate hikes.
Also in focus is the upcoming U.S. Consumer Price Index (CPI) report, a major gauge of inflation trends. Should the data exceed expectations, it could reinforce the Fed’s hawkish tone, boosting the U.S. dollar and putting renewed downside pressure on the EUR/USD pair.
EUR/USD Technical Analysis: Cup and Handle Pattern Points to Upside
From a technical perspective, the EUR/USD pair is exhibiting a bullish Cup and Handle (C&H) chart pattern on the daily timeframe, a formation widely regarded as a precursor to sustained upward momentum. The pair recently touched a high of 1.1142, its highest level since October 2024, and is currently hovering around 1.0935, near the upper rim of the cup structure.
The C&H pattern typically signals a continuation trend, wherein the price consolidates (the handle) after a rounded bottom (the cup) and then breaks out to the upside. In this case, a decisive break above the 1.1142 resistance zone would confirm the breakout, potentially pushing the pair toward the next psychological level at 1.1200.
Additional indicators reinforce this bullish bias:
- The pair has broken above the 50-day and 100-day Exponential Moving Averages (EMAs), indicating sustained upward momentum.
- The Percentage Price Oscillator (PPO) is trending higher, suggesting that the short-term moving average is gaining strength over the long-term one.
- The Relative Strength Index (RSI) is climbing but remains below overbought territory, suggesting there is still room for further gains.
Given these developments, bullish traders may look to initiate positions near current levels, targeting a break above 1.1142, with further upside potential toward 1.1200 and beyond. However, a failure to sustain momentum could lead to a retest of key support levels, including 1.0900 and potentially 1.0835, the recent swing low.
Conclusion
The EUR/USD outlook remains in flux as geopolitical tensions, central bank policies, and technical dynamics interact to shape investor sentiment. The trade dispute between the U.S. and Ethe U has introduced a new layer of uncertainty, prompting markets to reevaluate expectations around interest rate differentials and economic resilience.
While euro weakness may be expected in the near term due to ECB rate cut prospects, the emergence of a bullish Cup and Handle pattern suggests a possible medium-term recovery, especially if macroeconomic data from the U.S. disappoints. Traders should closely monitor the FOMC minutes, inflation data, and ECB commentary, as these will likely determine the next directional breakout for the pair.
In short, while fundamental risks remain to the downside, technical indicators are aligning in favor of a bullish continuation in the EUR/USD pair.
COMTEX_465025518/2922/2025-04-29T03:43:36
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