Daily Price Outlook
During the European trading session, the EUR/USD currency pair has been making a strong rebound, moving back towards the 1.0510 level. The pair is on track to break above its six-week high of 1.0520.
This recovery comes after the US Dollar gave up its earlier intraday gains, which had been fueled by concerns over potential tariffs on Colombia proposed by former President Donald Trump.
At the same time, the Euro (EUR) is gaining momentum as markets await the European Central Bank’s (ECB) upcoming monetary policy decision.
The ECB is widely expected to lower its Deposit Facility rate by 25 basis points, bringing it down to 2.75%.
Additionally, the Main Refinancing Operations Rate is likely to decrease to 2.9%. This would mark the fourth consecutive interest rate cut by the ECB.
EUR/USD Strengthens Ahead of ECB Rate Cut Expectations and Economic Data
On the EUR front, the shared currency has been strengthening as the US Dollar weakens. This move is largely driven by a shift in market sentiment, with traders anticipating a rate cut from the European Central Bank (ECB).
The ECB is expected to lower its Deposit Facility rate by 25 basis points, bringing it to 2.75%. This would be the fourth consecutive rate cut by the central bank.
As a result, the Euro is edging higher ahead of the ECB's monetary policy decision, with markets looking for fresh guidance from ECB President Christine Lagarde on how the bank plans to handle economic challenges, including the potential impact of former President Trump’s tariffs on the Eurozone.
Traders are confident that the ECB will continue to cut rates, especially given the Eurozone's inflation is under control and growth prospects remain sluggish.
Investors are also expecting three more rate cuts this year during the ECB's meetings in the first half. The upcoming press conference by Lagarde will be crucial for any hints on future monetary policies and the ECB’s response to external pressures.
On the economic front, data from Germany is showing mixed signals. The German IFO Business Climate Index rose slightly to 85.1 in January, beating expectations. However, the IFO Expectations Index, which gauges future sentiment, slowed more than expected.
This week, investors will also be focusing on the Eurozone’s preliminary Q4 GDP data, expected to show a 1% growth year-over-year, which is an improvement from the previous quarter's 0.9% growth.
US Dollar Weakens as Tariff Concerns Ease, Investors Eye Fed and ECB Rate Decisions
On the US front, the broad-based US dollar has reversed its earlier gains as concerns about tariffs on Colombia by former President Donald Trump eased. Trump had proposed a 25% tariff on Colombia after the country refused to accept military flights carrying deported immigrants from the US.
However, the situation shifted when the Colombian government agreed to Trump's terms, putting the proposed tariffs "on hold." As a result, the US Dollar Index (DXY), which tracks the Greenback against six major currencies, slid to around 107.00, driving the EUR/USD pair higher.
Market sentiment remains cautious, with investors awaiting important interest rate decisions from the Federal Reserve (Fed) and the European Central Bank (ECB) this week. The Fed is expected to keep interest rates unchanged within the 4.25%-4.50% range, according to the CME FedWatch tool.
Investors will be closely watching Fed Chair Jerome Powell's press conference for any hints about the central bank's stance, particularly in response to Trump's calls for immediate rate cuts.
On the US economic front, key data releases this week include Durable Goods Orders, the Personal Consumer Expenditure Price Index (PCE) for December, and preliminary Q4 Gross Domestic Product (GDP) data.
These reports will provide further insights into the strength of the US economy and could influence market expectations around future Fed policy.
The easing of tariff concerns between the US and Colombia has led to a weaker US Dollar, causing the EUR/USD pair to rise. Investor focus on upcoming interest rate decisions from the Fed and ECB adds further uncertainty to the pair's movement.
EUR/USD – Technical Analysis
The EUR/USD pair is experiencing downward pressure, currently trading at $1.04591, marking a 0.32% decline for the session. The pair has struggled to hold above the pivot point at $1.04471, which serves as a key level for directional bias.
A sustained move above this level could trigger renewed bullish momentum, with immediate resistance standing at $1.04971. Further upside potential is seen at $1.05329 and $1.05682 if bullish sentiment persists.
On the downside, the pair faces immediate support at $1.03971, with additional cushions at $1.03515 and $1.03012. A break below these levels could intensify selling pressure, pushing EUR/USD into a deeper correction phase.
The broader market sentiment remains cautious as investors await key economic data from the Eurozone and the U.S., particularly inflation reports and central bank commentary, which could drive volatility in the pair.
Technical indicators suggest a neutral to bullish outlook, with the 50-day EMA positioned at $1.04269, providing dynamic support.
If the pair maintains strength above this moving average, it could signal further buying interest. However, failure to sustain above $1.04470 might invite sellers back into the market.
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