Daily Price Outlook
During the early European trading session on Monday, the EUR/USD currency pair extended its modest rebound and moved closer to the 1.1360 mark.
The pair found support as the US Dollar (USD) remained under pressure due to growing market caution ahead of the upcoming Federal Reserve (Fed) policy decision and renewed speculation over potential ECB rate cuts.
EUR/USD Strengthens as ECB Rate Cut Bets Stay Intact Despite Hotter Inflation
On the EUR front, the shared currency held broadly steady on the day, but optimism around additional interest rate cuts by the European Central Bank (ECB) provided underlying support.
This came even after the latest Eurozone Harmonized Index of Consumer Prices (HICP) data for April showed inflation rising faster than expected. In the meantime, the core HICP jumped to 2.7% year-on-year, beating both forecasts of 2.5% and the prior 2.4% reading, while headline inflation climbed to 2.2%.
Despite this, traders seem more focused on the broader economic challenges facing the Eurozone, including the possible fallout from former US President Donald Trump’s protectionist stance, rather than short-term inflation pressures.
Supporting this dovish outlook, ECB Vice President Luis de Guindos commented in a recent interview that the central bank is likely to continue reducing rates, depending on the inflation trajectory.
Moreover, investor sentiment in the Eurozone improved in May, with the Sentix Investor Confidence Index rising to -8.1 from -19.5, suggesting a mild recovery in outlook despite external risks.
US Dollar Pressured by Fed Policy Uncertainty and US-China Trade Tensions
On the US front, the broad-based US dollar Index (DXY) dropped toward 99.80 and stayed weak within Friday’s range. Investors are being cautious ahead of the Federal Reserve’s policy meeting on Wednesday.
While the Fed is expected to keep interest rates steady at 4.25%-4.50%, the market is paying close attention to the statement and Fed Chair Jerome Powell’s press conference for any hints of a future policy change.
Although recent strong US jobs data and high inflation expectations may prevent the Fed from cutting rates soon, investors are also worried about the possible economic effects of former President Trump’s proposed tariffs. This adds more uncertainty to the outlook.
In addition, tensions between the US and China over trade are hurting market confidence. President Trump said some trade deals might be announced soon, but he also admitted there’s been no direct contact with Chinese President Xi Jinping. This lack of communication keeps investors concerned about potential trade disruptions.
EUR/USD – Technical Analysis
The EUR/USD pair is struggling to reclaim ground above its descending trendline, trading just below the 50-period Simple Moving Average (SMA) at $1.13530.
Friday's candles printed a rejection wick near the $1.13423 resistance—right where the SMA intersects the trendline—underscoring a strong technical ceiling for now.
Price action remains capped within a bearish channel that’s been intact since the $1.14500 rejection in April.
From a structural view, the pair is forming lower highs and lower lows, preserving bearish momentum. A cluster of indecisive candles, including a spinning top and weak bullish attempt, adds weight to short bias near resistance.
The RSI sits at 46.97, slightly below neutral, with its average at 40.77—indicating a slight bearish lean but no oversold signal yet. No bullish divergence is present.
Key to the bearish outlook is the inability to sustain a close above $1.13423. A confirmed break lower from current levels could expose $1.12676 support, with further downside toward $1.12285.
However, if bulls manage a clean close above $1.13530 with strong volume, it may flip near-term sentiment and force a squeeze toward $1.13901.
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