Over the past two trading sessions, EUR/USD has shown consistent weakness, falling by more than 0.5%, as the U.S. dollar regains strength. This renewed downward pressure has emerged ahead of the upcoming European Central Bank (ECB) rate decision on Thursday, where the market expects a rate cut, which could further weigh on the euro in the short term.

ECB Decision Approaches

The ECB is scheduled to announce its next monetary policy decision on Thursday, April 17, and expectations are for the benchmark rate to drop to 2.4%, a 25-basis point cut from the current level of 2.65%.

This would continue the rate-cutting cycle that began in April 2024, when the ECB’s rate was still above 4%. Although 2.4% is considered low, it’s still above 2022 levels, when rates were below 1%. This suggests there is still room for the ECB’s dovish stance to continue.
As rates decline further, the appeal of euro-denominated investments decreases, which is a key factor that could weaken the euro in the coming months.

Source: ForexFactory

In this context, it’s also important to monitor the behavior of the U.S. dollar. The Federal Reserve’s stance appears to be diverging from that of the ECB. According to CME Group data, there is currently an 82.7% probability that the Fed will keep rates in the 4.25%–4.5% range at its upcoming May 7 meeting.

Source: CME Group

In the U.S., the 2% inflation target still seems out of reach, so the Fed has indicated that current rates can remain elevated for now. This reflects a more stable outlook, contrasting with the ECB’s more flexible, dovish approach.

The divergence in monetary policy between the two regions will be a key factor moving forward. While Europe prepares for another rate cut to 2.4%, the U.S. maintains 4.5% with a neutral stance on future moves. This rate differential continues to make U.S. Treasuries more attractive than European fixed-income assets.

Although the dollar recently lost strength due to economic uncertainty, a renewed appetite for dollar-denominated assets could push the euro into the background, especially if this rate gap persists. This scenario could lead to renewed downward pressure on EUR/USD.

The Euro as a Safe Haven

Since the U.S.–China trade war intensified—with 145% tariffs from the U.S. and 125% from China—the euro has acted, to some extent, as a safe-haven currency. This has been reflected in heavy dollar selling, as the trade conflict was viewed as a direct threat to the U.S. economy, weakening confidence in the greenback.

However, in recent sessions, the European Union has made progress in negotiations that could result in a favorable agreement, capitalizing on the 90-day tariff pause proposed by the White House. Additionally, the U.S. Treasury Secretary has mentioned the possibility of reaching a deal with China in the near term.

These updates have helped de-escalate trade tensions, partially restoring market confidence, which has favored the U.S. dollar and pressured the euro in the short term.

If negotiations advance and the trade war fades into the background, selling pressure on EUR/USD could return. For now, the euro remains the currency that has best withstood market uncertainty, and this resilience could persist if no definitive agreements are reached.

Technical Outlook for EUR/USD

Source: StoneX, Tradingview

• Trend Accelerates: Since March 3, the long-term bullish trend has steepened, confirming the strength of upward momentum in recent weeks. So far, selling pressure has been weak and insufficient to break the pattern, so the current trendline, which remains above the 200-period moving average, continues to be the dominant formation.

   

• ADX: The ADX line remains above the 20 level, indicating ongoing volatility and confirming that the recent upside follows a strong directional trend. If the ADX continues to rise, upcoming moves may become more aggressive.

   

• RSI: The RSI is currently above the 70 level, signaling overbought conditions in the short term. Additionally, there is a technical divergence, with higher highs in price but flat readings in the RSI, suggesting a potential imbalance in buying pressure. This could pave the way for short-term bearish corrections.

   

  Key Levels:

   

• 1.15000 – Tentative Resistance: A psychological level and key reference point in the short term. A sustained breakout above this area could strengthen the bullish bias and lead to a more pronounced uptrend.

   

• 1.11794 – Near Support: Aligned with neutral price zones from October 2024, this level may serve as a short-term support area in case of a correction.

   

• 1.09183 – Key Support: A critical level that has previously acted as a consolidation zone. A drop to this area could weaken the current bullish structure and put the broader trend at risk.

Written by Julian Pineda, CFA – Market Analyst