• EUR/USD forecast largely unchanged as markets await Trump-Xi call amid tariffs fatigue
• Softer Eurozone inflation raises odds of dovish ECB messaging Thursday
• EUR/USD struggles near 1.1450, with short-term rallies likely capped

While the longer term EUR/USD forecast is likely to remain supportive amid ongoing concerns about the US debt situation, in the near term some weakness should not come as major surprise as traders juggle a mix of soft Eurozone inflation, hawkish headlines from the US, and geopolitical noise that just won’t go away. The most immediate wildcard is the much-anticipated phone call between Donald Trump and Xi Jinping — an event that could steer risk sentiment sharply in either direction. This week, we will also have a rate decision from the European Central Bank and key US jobs data to look forward to.

Trump: Xi ‘extremely hard to make a deal with’

In a social media post earlier today, Trump called Xi “extremely hard to make a deal with,” while simultaneously insisting he “likes” the Chinese president. Classic Trump ambiguity there. Still, markets are betting — or at least hoping — that the direct line between Washington and Beijing could ease trade tensions, even temporarily. That would offer the dollar, which has tended to fall when trade tensions rise, a short-lived boost. But traders will likely remain sceptical about any lasting progress for both the trade situation and the dollar’s recovery prospects.

After all, the latest 50% tariffs on steel and aluminium are already in place. These aren’t just threating anymore — they’re policy. Unless the Trump-Xi call leads to concrete movement, the dollar may struggle to maintain its new-found footing, and so the EUR/USD may soon stray to climb back again.

EUR/USD forecast: Temporary US dollar rebound or something more?

The US dollar has managed a modest recovery so far this week, supported in part by stronger-than-expected April JOLTS job openings. But let’s not overstate it as support for the greenback is mainly due to optimism about the US-China trade talks re-starting.

It is the bond markets where the main risks are for the dollar. Well, this week, they have also stabilised somewhat. Treasurys have bounce back but underlying trend remains shaky. Investors are demanding a higher rate of return for holding government debt. They no longer see Treasuries as a “risk free” asset class. Rising debt levels and no concrete plans to end the deficit spending are raising concerns about the long term impact on the economy.

ISM services PMI coming up after ADP disappoints

Following Monday’s softer ISM manufacturing print and Tuesday’s stronger JOLTS data, and a poor showing from the ADP payrolls report released moments ago (37K vs. 114K expected) all eyes turn to the ISM services index later. The latter is expected to edge up from 51.6 to 52.0, while ADP payrolls are forecast to jump to 114K from last month’s weak 62K print. If the numbers beat, we could see another bump in the dollar — but the upside may remain limited ahead of Friday’s non-farm payrolls, which is this week’s most important macro release.

All told, it may be too early to fully lean into USD shorts until the Trump-Xi call materialises. After that, the dollar could face renewed pressure — especially if the call underwhelms or if Friday’s NFP disappoints, or if bond markets resume sliding. So, there are lots of risks facing the US dollar, which is why we maintain a bullish EUR/USD forecast but prefer to step in on the dips than chasing moves.

Cooling Eurozone inflation and its impact on EUR/USD forecast ahead of ECB

Here in Europe, the euro is starting to look a little bit overstretched with the EUR/USD trading near the 1.1400 level. The soft Eurozone inflation data released yesterday means there is now the risk for a short-term pullback, as traders entertain the idea of more rate cuts by the ECB in the summer. Core CPI decelerated from 2.7% to 2.3%, while the headline figure dipped below the ECB’s 2.0% target. That significantly raises the odds of a dovish message from the ECB on Thursday. Markets were already expecting a deposit rate cut to 2%, and this data cements the case.

Today’s eurozone calendar was light, putting the spotlight squarely on US data, Thursday’s ECB meeting and the Trump-Xi call — all of which could reshape the short-term EUR/USD forecast.

EUR/USD technical forecast: key levels to watch

Source: TradingView.com

Technically, the EUR/USD forecast remains constructive but in the short-term a bit vulnerable amid dwindling momentum. The pair continues to make higher highs and higher lows, and it’s trading above key moving averages. But without a decisive break above 1.145 this week, we could see bit of a corrective move towards support zones around 1.1300 and then 1.1215–1.1220 area. A drop below the 1.1210–1.1265 band would threaten the bullish structure, as then it will have broken the rising trend line.

On the flip side, a break above 1.1450 opens the door toward 1.1500 and potentially the April highs near 1.1570. But for that to happen, we’ll probably need to recession-like US data this week.

All told, until the Trump-Xi call and ECB decision play out, expect EUR/USD forecast to remain stable, and price action to stay range-bound. I remain cautious on chasing USD rallies and see 1.1215-1.1220 as a key area to watch if bearish momentum builds.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R