(MENAFN- Daily Forex)
The EUR/USD currency pair is attempting to maintain its recent upward rebound gains, which recently reached the resistance level of 1.0533, the pair's highest level in a month, before settling around 1.0490 at the time of writing this analysis. It is awaiting important US and European events that will determine the fate of the Euro-Dollar in the coming days. The euro is engaged in a short-term recovery against the dollar, and further gains are possible. Obviously, central bank decisions in both Europe and the United States constitute the most prominent risks in this week's trading.
The US Dollar Declines Amid a Shift in Trump's Policies
According to recent forex market trading, the US dollar declined to record its weakest performance in more than a year last week, as investors reduced their expectations for imposing comprehensive tariffs on US imports, which markets considered the most positive policy that Donald Trump could implement. Overall, Trump's victory in November accelerated the rise of the US dollar index, as investors considered such a scenario. After a week in office, traders are increasingly certain that the comprehensive tariffs will not be implemented.
Instead, it became clear that US tariffs would be used as part of a geopolitical bargaining tool, allowing for negotiations and avoiding the worst outcomes from a trade perspective. In this regard, the transactional approach to tariffs was revealed on Sunday when Trump threatened Colombia with a 50% tariff on imports after refusing to allow a deportation flight to Colombia to land. The Colombian government quickly abandoned its position, and tariffs are now out of the picture.
As for the Eurozone, it appears that Trump will drop the tariff threat if European countries commit to buying more US oil and gas. That is not a huge hurdle to overcome for a region that is almost entirely devoid of its own oil and gas production. The developments therefore reduce the chances of reaching parity between the Euro and the US Dollar, although it should be noted that the downward exchange rate trend remains intact from a multi-week perspective and we may just see a pullback in the overbought US Dollar.
Meanwhile, resuming selling remains a high-risk outcome for the first half of 2025.
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The Euro-Dollar will remain in its current range until the reaction to the central bank announcements this week and the signals coming from the US administration's policies, so always be careful and do not take risks eyes are on the US Federal Reserve
This week, the US Federal Reserve meeting comes amid Trump's speech in Davos where he explicitly called for a cut in US interest rates, confirming that the Federal Reserve will face a more interventionist White House. As is known, the US Federal Reserve is independent, but verbal pressure from the executive branch could lead to 50-50 wrong decisions on the dovish side, i.e. more cuts than would have been the case previously. This is negative for the US Dollar against other major currencies.
The expectations are that the Federal Reserve will leave US interest rates unchanged, saying that more time is needed to reflect on the strong nature of the US economy and the impact of previous interest rate cuts. Concurrently, the market is pricing in just one cut this year A rate cut is essential to boost growth in the eurozone economy. Moreover, inflationary pressures remain stubbornly above the European Central Bank's 2.0% target.
The ECB will therefore welcome last week's unexpectedly higher-than-expected PMI reading, which suggested that the eurozone's economic data pulse has bottomed out. This should allow the ECB to express some optimism and respond to calls for an acceleration in the pace of cuts, which could boost the euro exchange rate.
Furthermore, this could allow the EUR/USD pair to recover above the 1.05 resistance for a while.
EURUSD Chart by TradingViewEUR/USD Technical Analysis Today:
The EUR/USD exchange rate is trading at 1.0490 after last week's 2.20% gain, its biggest weekly advance since July 2023. The advanced technical setup suggests that the euro has broken the downtrend line that defined the September-January sell-off, which could increase confidence in a short-term interim bottom. Now, EUR/USD has moved above its nine-day exponential moving average (EMA) as the bounce grows, confirming bullish momentum on the multi-day forecast horizon. However, the advance late last week means that the spot has deviated quite far from the nine-day EMA (currently at 1.0408), suggesting some neutrality towards this level is likely in the next couple of days.
EUR/USD is expected to hold between 1.0409 and 1.05 in the first part of the week, with a break higher in the latter part of the week likely to send it higher towards the near-term target of 1.0570. This level represents the 38.2% Fibonacci retracement of the September and January selloffs. Overall, this gain will depend on what the US Federal Reserve says about interest rate expectations at its policy meeting tomorrow, Wednesday, and what the European Central Bank says and does on Thursday. Furthermore, Donald Trump's ongoing efforts to shape America and the world order in his image will overshadow the risks of the two central bank events. Ultimately, expect more tariff threats and musings from the US President to provide volatility in the near term.
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