The EUR/USD pair, the most heavily traded currency pair globally, is currently facing pressure due to renewed demand for the US Dollar. Traders are exercising caution ahead of key policy announcements from both the Federal Reserve and the European Central Bank (ECB). The pair is hovering around the 50-day Exponential Moving Average (EMA), trading near 1.0455, and has recently corrected to approximately 1.0410 after failing to break through the resistance level of 1.0530. The near-term outlook remains stable, with the pair maintaining its position above the 20-day EMA at around 1.0395.
The upcoming ECB monetary policy meeting, scheduled for Thursday, is a significant event influencing the EUR/USD dynamics. It is anticipated that the ECB will maintain interest rates steady with a slightly hawkish stance. The ECB's primary mandate revolves around price stability, either by controlling inflation or stimulating growth. Market participants expect the ECB to continue reducing its key borrowing rates throughout all meetings until summer, with a 25 basis points cut already factored in, which would lower the Deposit Rate to 2.75%.
The ECB Governing Council convenes eight times a year to make crucial monetary policy decisions. The Eurozone inflation data, specifically the Harmonized Index of Consumer Prices (HICP), serves as a vital economic indicator for the Euro, alongside the Trade Balance data release. These factors significantly impact the EUR/USD pair, making the ECB's monetary policy decisions highly influential.
"The tariff threat may be perceived more seriously given the Treasury’s active planning, and that materially shrinks the upside potential for the euro." – Analysts at ING
The Euro, used by 19 European Union countries within the Eurozone, tends to benefit from relatively high interest rates compared to its counterparts. Higher rates make the region more attractive for global investors seeking opportunities to park their money. However, ongoing concerns about tariffs and industrial growth create a challenging environment for the Euro.
"The situation is very serious: Growth in industry in particular has suffered a structural break," – BDI President Peter Leibinger
The ECB's cautious approach reflects concerns over global economic uncertainties and external pressures such as tariffs. ECB President Christine Lagarde emphasizes the importance of preparation and anticipation in responding to potential challenges, particularly with regard to selective and focused tariffs expected under Trump.
"anticipate what will happen" and be "prepared in order to respond," as Trump’s tariffs would be “selective” and “focused.” – ECB President Christine Lagarde