The EUR/USD currency pair rebounded strongly this Thursday after opening extremely bearish. At the same time, the US Dollar Index (DXY) found it increasingly difficult to sustain its two-day rebound, unable to clear a key upside barrier at 100.00. The Euro managed to outperform its peers even amid rising expectations that the European Central Bank (ECB) may implement interest rate cuts during its upcoming policy meeting in June.
In EUR/USD, during European trading hours, the currency pair made a fast move down to a low just above 1.1285 and then bouncing to around 1.1330. This turnaround followed the duo’s mean-reversion to about the 20-day Exponential Moving Average (EMA), which currently markets close to 1.1250. The market’s attention is still on the key upside pivot point at 1.1300, a level bulls want to defend heading into this Friday session.
Economic Pressures on the US Dollar
The US Dollar is on the ropes right now. Much of this turmoil is based on an exceedingly dim economic outlook, made even darker by the recent tariff increases President Donald Trump has enacted. Even at the end of the year, the most recent data indicated that the economy was still shrinking by 0.3% on an annualized basis. It’s the first such quarterly drop in three years. Analysts attribute this drop to companies that are moving imports up from overseas suppliers. That anticipation is for even higher tariffs, a turn of events triggered by the inspiration of the term “Liberation Day.”
This sudden economic contraction has sent investors into a tizzy and has exacerbated fears about the overall health of the US economy. Analysts are looking to and for the real GDP Annualized. This measure, which is the best and most comprehensive gauge of all final goods and services produced in a given period, touted as a huge victory, would have enormous implications for future growth.
“The slowdown in labor growth, a surge in inflation and a sharp slowdown in retail spending doesn’t fully reflect the real impact of new economic policies.” – Analysts at Morgan Stanley
These common economic factors have increased uncertainty and weighed on the dollar’s performance against other major currencies, such as the Euro.
Eurozone Performance and ECB Expectations
The Eurozone has proven to be surprisingly strong in the face of a challenging US economic backdrop. These Flash Eurozone Q1 GDP numbers were much stronger than expected. Analysts were not expecting such strong quarterly and annual growth figures. This unexpectedly strong performance has understandably strengthened confidence in the Euro itself and is part of what’s driving the Euro strength against the dollar.
As a result, market participants are closely observing the ECB’s next policy meeting in June. They want to hear lines of questioning about upcoming interest rate reductions, if any. While some analysts express concern about these cuts’ timing and implications, others believe that maintaining a robust stance could support the Euro’s performance.
The stand-off of 1.1300 in EUR/USD remains on the trading screen. Shedding the bullish note, traders are now looking for resistance on a break above 1.1500. On the flip-side, support for Euro bulls is seen at the September 25 high of 1.1214 which will be watched intently by traders.
Technical Indicators and Market Outlook
Technical indicators are providing a confused picture for the EUR/USD pair. The 14-day RSI has fallen into the 40.00-60.00 neutral zone. This change suggests that bullish momentum may have hit a wall for the foreseeable future. That might suggest an immediate period of consolidation or even retracement in the short term.
The euro’s rebound to up close to 1.1330 shows you have an extraordinarily strong initial market reaction to what’s news. Professional traders closely research the technical and fundamental factors which move currencies. They’re constantly on watch for any change in sentiment that may make the pair move opposite to their overall positioning.