Daily Price Outlook
During the European trading session, the EUR/USD currency pair continued its upward trend and stayed strong around the 1.0471 level, reaching an intra-day high of 1.0528. This shows that the Euro was performing well earlier in the day, attracting buyers. However, as the session progressed, the pair lost some of its gains due to weakness in the Euro.
The Euro weakened following the German federal election results, where no single party secured a clear majority. This political uncertainty added pressure to the Euro, as it could slow down economic growth in Germany, which is the largest economy in the Eurozone. Investors became cautious, leading to a partial pullback in the EUR/USD pair.
Despite the Euro's weakness, the downside in the EUR/USD pair remained limited due to a weaker US Dollar. Investors overlooked disappointing US flash S&P Global PMI data for February, keeping the dollar under pressure. As a result, the EUR/USD pair maintained some of its earlier gains, preventing a sharper decline.
US Dollar Weakens on Soft PMI Data and Fed Rate Cut Bets, but Trade Risks Persist
On the US front, the broad-based US Dollar lost momentum as weak economic data raised expectations of Federal Reserve (Fed) rate cuts.
The latest S&P Global PMI report showed that private business activity in the US grew at a much slower pace in February.
The Composite PMI, which tracks both manufacturing and services, dropped to 50.4, the lowest level since September 2023. The decline was mainly driven by weaker services sector activity, which fell to 49.7 from 52.9 in January.
This drop was unexpected and was linked to political uncertainty over federal spending cuts and their potential impact on economic growth and inflation. However, the manufacturing sector performed better, with the Manufacturing PMI rising to 51.6, exceeding expectations.
The weak PMI data strengthened market bets that the Fed will cut interest rates in June, pushing the probability to 63.5% from 50% last week.
However, some support for the Dollar came from concerns over a global slowdown due to former US President Donald Trump's tariff threats. He has warned of imposing tariffs on products like lumber, semiconductors, pharmaceuticals, and automobiles, which could impact global trade.
Therefore, the weak US PMI data and rising Fed rate cut bets support the EUR/USD pair by weakening the Dollar. However, Trump's tariff threats limit gains, creating mixed sentiment and potential volatility in the pair.
EUR Weakens Amid German Election Uncertainty and ECB Rate Cut Signals
On the EUR front, the shared currency weakened following the German federal election, as no single party secured a clear majority. Friedrich Merz, leader of the Christian Democratic Union (CDU), is set to become Germany’s Chancellor but faces tough negotiations to form a coalition government, likely with the Social Democratic Party (SPD).
Analysts at ING believe the new government may only bring short-term economic benefits, such as minor tax cuts and small reforms. Adding to the Euro's weakness, the European Central Bank (ECB) remains focused on policy easing.
ECB policymaker François Villeroy de Galhau recently stated that the central bank could cut its deposit rate to 2% by summer, reinforcing expectations of lower interest rates.
EUR/USD – Technical Analysis
EUR/USD is trading at $1.04827, showing slight downward movement but maintaining support above the pivot point at $1.04553. This level is crucial as it aligns closely with the 50 EMA at $1.04518, providing a key support zone.
The technical outlook remains cautiously bullish above this level. If EUR/USD can break above the immediate resistance at $1.05290, it may target the next resistance at $1.05673, with a potential extension to $1.06076.
However, if prices fall below the pivot point, the first support is at $1.04075, followed by $1.03556 and $1.03157. A break below the 50 EMA could signal a bearish shift, increasing selling pressure. The overall outlook remains bullish as long as EUR/USD trades above $1.04553 and the 50 EMA, but a breakdown below these levels could signal a bearish reversal.
Traders should watch for a decisive breakout above $1.05290 for bullish continuation, while a drop below $1.04553 may indicate a bearish pullback.
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