The EUR/USD pair has fallen 1.5% in the last two sessions as the US dollar has regained strength, thanks to improving trade sentiment and the widening interest rate differential between the European Central Bank (ECB) and the US Federal Reserve (Fed).
Recent EUR/USD Performance Shows Dollar Strength Amid Shifting Trade Tensions
The euro-dollar has been on a sharp turnaround in recent trading sessions, falling more than 1.5% as the US dollar has regained its bullish momentum. The key currency pair has been showing a neutral bias, which has persisted throughout recent market volatility. The changing landscape around international trade negotiations and diverging central bank policies appears to be driving this EUR/USD trend.
Trade Relations Impact on EUR/USD
Market sentiment has begun to recover following President Trump’s optimistic comments on the US-China talks. His statement that he could reduce tariffs from 145% to 80% has boosted sentiment ahead of important diplomatic meetings between the US Treasury and Chinese representatives in Geneva.
This renewed confidence has provided unexpected support for the US dollar, which had previously weakened as trade tensions escalated. The CNN Fear and Greed Index is now at 62, well into the “greed” zone, indicating a positive investor outlook. This change in sentiment has contributed to the EUR/USD pair’s current neutrality.
Central Bank Divergence Affecting EUR/USD Direction
A key factor influencing the Euro-Dollar outlook is the growing divergence between European and US monetary policies. The European Central Bank (ECB) continues to signal a dovish approach, with a 54% probability of reducing its deposit rate from 2.25% to 2%.
Meanwhile, the US Federal Reserve has maintained its neutral stance, holding rates steady at 4.5%. This widening interest rate differential creates a significant dynamic for the EUR/USD pair, potentially attracting investors to dollar-denominated assets due to their higher yields.
See more related articles: How interest rates impact currency prices
Technical Analysis: EUR/USD Neutrality Takes Hold
The EUR/USD technical indicators suggest consolidation following the recent breakdown of a short-term ascending trendline. Key technical signals include:
- RSI hovering around 50: Indicating balanced buying and selling pressure for Euro-Dollar.
- Declining ADX line: Suggesting weakening trend momentum in recent price action.
- Key resistance at 1.15000: A psychological level that could determine future direction.
- Important support at 1.10000: Aligned with the 50-period moving average for this currency pair.
- Major support at 1.09213: Previous consolidation zone that could trigger a new bearish Euro-Dollar trend.
Outlook for EUR/USD Trading
As market sentiment continues to improve and the US dollar regains strength, EUR/USD could remain neutral in the short term. Traders should keep a close eye on trade talks and central bank statements as these are the factors that could have a major impact on the pair.
The possibility of higher US interest rates combined with the recovering market sentiment could continue to boost demand for the USD, putting pressure on the Euro. Amid continued monetary policy divergence, EUR/USD is likely to move sideways until a clearer catalyst emerges on the direction.
