Daily Price Outlook
During the European trading session, the EUR/USD currency pair failed to maintain its bullish rally and turned bearish around the 1.0421 level, hitting an intra-day low of 1.0419.
The downward trend was mainly due to the strengthening US Dollar, which initially gained support from investor confidence that the Federal Reserve (Fed) will keep interest rates high for a longer period.
The US Dollar Index (DXY), which measures the dollar's value against major currencies, recovered to 107.10 on Tuesday before dropping again to around 106.90 on Wednesday.
Despite some positive momentum for the US Dollar, its strength faded as it struggled to extend its recovery. Investors are now convinced that the Fed will not cut interest rates anytime soon, reinforcing expectations that rates will remain steady at 4.25%-4.50% through the March, May, and June meetings.
This cautious stance by the Fed has created mixed signals in the market, leading to fluctuations in the EUR/USD pair.
As a result, the EUR/USD pair managed to recover slightly, ticking higher near the 1.0460 level. The overall market sentiment remains uncertain, with traders closely watching economic data and Fed statements for further direction. While the US Dollar still holds a strong position, its inability to sustain gains has allowed the euro to regain some ground.
ECB's Rate Cut Expectations Weigh on Euro, Limiting EUR/USD Gains
On the European front, the European Central Bank (ECB) is expected to cut interest rates three times this year as some policymakers see inflation falling below the 2% target.
Recently, the ECB reduced its Deposit Facility rate by 25 basis points to 2.75% but did not commit to any fixed monetary easing path. This uncertainty has kept the Euro’s strength in check, balancing out the gains against the struggling US dollar.
Therefore, the ECB’s expected rate cuts weaken the Euro by reducing its appeal to investors. This limits EUR/USD gains, balancing the pair as the US dollar also struggles due to Fed’s steady rate outlook.
Fed's Cautious Stance Limits USD Strength, Supporting EUR/USD
On the US front, the broad-based US dollar has been under pressure, allowing the EUR/USD pair to gain slightly. Despite this, investors remain confident that the Federal Reserve (Fed) will keep interest rates steady in the 4.25%-4.50% range for longer.
The CME FedWatch tool suggests no rate changes are expected in the Fed's March, May, and June meetings. This cautious approach from the Fed has limited the dollar’s strength, preventing it from making a solid recovery.
Apart from this, San Francisco Fed President Mary Daly stated at a banking conference that monetary policy needs to stay “restrictive” until inflation shows further signs of improvement. She emphasized being cautious before making any policy adjustments, especially with the labor market and economy still strong.
Daly also commented on the uncertainty around President Trump’s economic policies, stating that their impact on growth, labor supply, and inflation will only be clear once more details emerge.
Investors are now waiting for the Federal Open Market Committee (FOMC) minutes from the January meeting, scheduled for release at 19:00 GMT, to gain further insights into the Fed’s stance.
EUR/USD – Technical Analysis
The EUR/USD pair is trading at $1.04566, posting a modest gain of +0.01% as traders assess the dollar’s next move amid shifting macroeconomic conditions.
The pivot point at $1.04551 is the key inflection level—holding above this keeps the short-term bullish case intact, while a sustained drop below could invite further weakness.
On the upside, immediate resistance stands at $1.05205, with a break above potentially paving the way toward $1.05563 and further extension toward $1.05920 if bullish momentum strengthens.
On the downside, support at $1.03922 serves as the first line of defense; if breached, it could accelerate selling pressure toward $1.03321, with $1.02854 acting as a deeper floor.
Technical indicators show a mixed picture. The 50-EMA at $1.04033 is trending slightly below price action, reinforcing a near-term bullish tilt.
However, the broader trend remains fragile, with the euro still struggling to decisively break resistance zones. A failure to maintain above the pivot point could see renewed pressure on the pair, especially if the dollar gains strength.
For traders, a buy entry above $1.04405 offers an opportunity, with a take-profit target at $1.05199 while keeping a stop loss at $1.04023 to manage downside risk.
The euro’s next move hinges on whether it can maintain support and challenge resistance levels. Short-term upside remains intact, but a break below $1.04551 could shift momentum back in favor of the bears.
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