Daily Price Outlook
During the European trading session on Friday, the EUR/USD pair rebounded sharply to 1.1260, recovering from a more than three-week low near 1.1200 earlier in the day.
This recovery was driven by a retreat in the US dollar, which saw the US Dollar Index (DXY) correct to around 100.40 from its recent high of 100.85.
The pullback in the Greenback came amid growing caution ahead of the highly anticipated US-China trade talks scheduled for Saturday, with investors adopting a wait-and-see approach.
US-China Trade Talks in Switzerland Raise Hopes for Tariff De-escalation
However, the market is closely watching the trade negotiations between the US and China, which are set to take place in Switzerland.
These talks have significant implications for global trade, as China is the second-largest importer of US goods.
Any potential de-escalation in the ongoing trade war between Washington and Beijing could have widespread economic ramifications, particularly in light of the downward revisions in global growth projections that have stemmed from these tensions.
US Commerce Secretary Howard Lutnick expressed optimism that the tariff war would de-escalate after the talks, while also noting that reducing tariffs is a primary goal for China.
This sentiment was echoed by reports suggesting that President Trump may soon lower tariffs on China to around 50-54%, though this has not yet been confirmed by the White House.
EUR/USD Strength Driven by ECB Confidence Amid Economic Concerns
On the EUR front. the Euro’s outperformance also played a key role in pushing EUR/USD higher. Despite concerns surrounding the Eurozone's economic outlook, the Euro advanced against its peers.
European Central Bank (ECB) officials showed confidence that inflation would return to the ECB’s target of 2%, but acknowledged challenges in achieving this goal.
Finnish central bank governor and ECB policymaker Olli Rehn remarked that the inflation target might require a more accommodative monetary policy if growth conditions worsen.
Although the Euro typically underperforms when ECB officials lean towards policy easing, the current resilience in the Euro was bolstered by Rehn’s belief that inflation is on track.
However, this sentiment was tempered by concerns over the economic outlook, with Rehn suggesting that further rate cuts could be necessary to hit the ECB’s inflation target.
EU Tariff Countermeasures Against the US Heighten Geopolitical Tensions
On the flip side, the Euro also faces potential headwinds due to the ongoing tariff disputes between the US and the EU.
On Thursday, the European Commission launched a consultation paper outlining possible countermeasures against US tariffs, with the EU considering retaliatory measures on up to €95 billion of US imports.
This move comes amid heightened geopolitical risks, as any failure to resolve trade tensions between the EU and the US could have implications for the Eurozone’s inflation and growth outlook.
EUR/USD – Technical Analysis
EUR/USD has staged a sharp recovery from the $1.11990 support, forming a bullish engulfing candle that signals potential upside.
The pair is now approaching the $1.12701 pivot point, with the 50 SMA at $1.12937 acting as immediate resistance. This area aligns closely with the recent breakdown level, making it a critical test for bullish momentum.
If buyers can push through this zone, the next resistance is at $1.12809, followed by a more significant barrier around $1.13058.
Technically, the RSI is climbing from oversold levels, currently at 44.81, indicating a potential momentum shift. The recent series of higher lows adds to the bullish case, suggesting the pair may attempt a larger recovery.
However, the overall trend remains bearish, as the 50 SMA continues to cap gains, and a break below $1.12332 could expose the pair to deeper losses toward $1.11990 and $1.11683.
In the short term, a move above the 50 SMA at $1.12937 is needed to confirm a more meaningful recovery, potentially opening the door to $1.13361.
However, failure to clear this barrier could see the pair resume its broader downtrend, with the $1.11990 support acting as a critical floor.
A sustained move above $1.12701 could trigger a push toward $1.12809, while a drop below $1.12332 risks a retest of $1.11990.
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