The US dollar remained on the front-foot in the first half of Wednesday’s session, which raised further questions about the EUR/USD outlook. European equity markets recovered on Tuesday following Monday’s stumble and were looking to bounce back after a weaker start on Wednesday. Sentiment remains buoyed by a mix of earnings optimism and hopes surrounding recent trade deals. Yet, despite the more constructive mood in equities, the euro remained under pressure, with EUR/USD continuing to drift lower as investors eye crucial US macroeconomic releases and the upcoming FOMC decision. Trade deal headlines have brought some calm to the dollar, while the single currency hasn’t found much renewed cause for celebration. Instead, dollar strength remains the dominant theme across FX markets.

Tepid cheers for Europe in EU-US trade accord

Initial reactions to the weekend’s EU-US trade announcement were lukewarm at best. Though markets briefly rallied on the headline, the broader takeaway among euro investors was far from euphoric. The deal, while averting an outright trade clash, offered few material benefits for the eurozone.

For European stakeholders, the sticking point lies in the concessions made. Critics argue the deal could stoke inflation in the US while leaving Europe relatively short-changed. European leaders are already said to be seeking revisions to some of the accord’s key elements, a move that may slow down final implementation.

That said, the inclusion of sectors like pharmaceuticals and semiconductors in the lower tariff band does offer a glimmer of long-term benefit for Europe. However, such positives were overshadowed by immediate skepticism. The euro, reflecting this sentiment, has remained under strain.

Complicating matters further is the status of US-China trade talks, with Washington and Beijing scrambling to extend their tariff truce past the looming mid-August deadline.

Eurozone GDP offers modest comfort, limited impact

Eurostat’s latest figures showed the euro area economy expanded by 0.1% in Q2, slightly outperforming expectations. France and Spain contributed positively, while Germany and Italy both contracted. Yet even this small upside surprise is unlikely to shift the European Central Bank’s dovish posture.

In truth, GDP data was met with a shrug from currency markets. With EUR/USD still pinned below 1.16, traders are more focused on how the EU-US trade framework and looming Fed decisions might shape near-term direction than on any single economic print from the euro area.

All yyes on the Fed: September in Focus

Markets are now firmly fixated on tonight’s Federal Reserve announcement. While no change is expected at this meeting, Chair Jerome Powell may use the occasion to subtly open the door to a rate cut in September. The key message is expected to emphasize data dependency, with labour market trends and inflation figures acting as the compass for any future moves.

Any surprise dovish tone from Powell could apply fresh pressure to the greenback, offering EUR/USD a reprieve. Conversely, if the Fed signals a willingness to hold rates higher for longer in response to stubborn inflation, dollar bulls could be reinvigorated.

As of now, market pricing reflects about a 70% chance of a cut in September. However, with no updated economic projections this time around, traders will have to parse Powell’s remarks carefully for forward guidance. Watch for potential dissent from known doves such as Waller and Bowman.

Data and energy markets also in the mix

Beyond the Fed, US GDP figures later today and Friday’s non-farm payrolls could inject further volatility into EUR/USD outlook. A strong reading in the Advance version of Q2 GDP report (expected at +2.5%) would likely reinforce hawkish sentiment, while any softness may support the case for easing.

Meanwhile, oil markets could become a wildcard. President Trump’s move to accelerate the deadline for Russia to agree to a ceasefire has rekindled concerns over secondary sanctions. Should supply fears escalate, a spike in oil prices could weigh further on the euro while lending support to the dollar through the inflation channel.

EUR/USD outlook: Technical picture still resilient

Despite recent weakness, it’s premature to call a definitive trend reversal in the technical EUR/USD outlook. Key support remains in the 1.1500–1.1570 zone—a region that has acted as both a floor and ceiling in recent times. A decisive break below this band could embolden bears, setting sights on the 1.1210–1.1275 range next.

On the flip side, resistance at 1.1600 is the first hurdle to clear for bulls. Beyond that, the 1.1700 area looms as the next key barrier.

Bottom Line: The week ahead will be pivotal for the EUR/USD outlook. Trade agreements, central bank policy and economic data are all converging. For now, caution prevails, but with so many moving parts, sharp moves in either direction can’t be ruled out.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R