EUR/USD Technical Breakdown: Strong Bullish Momentum as Dollar Weakens Amid Tariff Uncertainty

EUR/USD Bullish Momentum Amid Weaker U.S. Dollar

The EUR/USD pair has been showing strong bullish momentum, recently trading near the 1.1400 zone, after a sharp run-up. The currency pair has breached key resistance levels, aided by the weakened U.S. dollar (USD), as traders re-evaluate the effects of global trade tensions and inflationary pressures. After initially facing a slight pullback in the European session, the pair hovered around the 1.1400 level, maintaining its overall upward trend.

Technically, the Relative Strength Index (RSI) is currently at 76, suggesting the pair is entering overbought territory. However, the MACD (Moving Average Convergence Divergence) continues to show positive momentum with a bullish buy signal, reinforcing the overall bullish outlook. In contrast, the Commodity Channel Index (CCI) at 231.17 signals a potential sell warning, indicating that some caution is required.

Key technical indicators also reflect the strong upward momentum of EUR/USD, with all the major moving averages pointing higher. The 10-day exponential moving average (EMA) is located at 1.10918, while the 100-day and 200-day moving averages are located at 1.05647 and 1.07456, respectively. This suggests that the pair could continue its bullish trend in the medium-to-long term.

U.S. Dollar Weakens: Tariff Impacts and Economic Concerns

The U.S. dollar (USD) has been under considerable pressure, largely driven by recent economic data and market concerns about U.S. inflation and trade policies. As of now, the U.S. Dollar Index (DXY) has dipped below 100, which has further fueled the upward movement in the EUR/USD pair. The U.S. CPI (Consumer Price Index) for March slowed to 2.4%, with core CPI at 2.8%, both coming in lower than expectations. These weaker inflation figures have led to a shift in market expectations, with traders now pricing in three to four potential rate cuts by the Federal Reserve by the end of 2025.

In addition, U.S.-China trade tensions have heightened, with China raising tariffs on U.S. goods to 125%, following the U.S.’s own tariff increases. This has raised concerns about slower economic growth and reduced global trade, which, combined with weak inflation data, has further weighed on the U.S. dollar. The pause in tariffs for 90 days has provided temporary relief, but ongoing trade uncertainties continue to loom over the dollar’s outlook, fueling the euro's gains against the dollar.

Key Support and Resistance Levels for EUR/USD

Looking at the technical chart for EUR/USD, there are several important levels to monitor:

• Support Levels:
  The first level of support is located at 1.1330, which is critical for maintaining the bullish bias. If EUR/USD were to break below this level, the next key support zone would be around 1.1100, with further downside risk towards 1.10918, the 10-day EMA.

• Resistance Levels:
  The immediate resistance lies at the 1.1420 area, followed by psychological barriers near 1.1450. If the pair manages to breach these levels, further upside could be expected towards 1.1525 and potentially beyond, testing highs not seen in over three years.

The RSI suggests that EUR/USD is in overbought territory, indicating that some short-term consolidation could occur, potentially pulling the price back toward support levels. However, as long as the 1.1247 level holds, the bullish structure remains intact.

Global Economic and Geopolitical Risks Driving EUR/USD

Geopolitical concerns surrounding the U.S.-China trade war have had a noticeable effect on the market, and EUR/USD has been reacting to this uncertainty. Germany’s manufacturing PMI has shown a narrowing gap relative to the U.S. ISM Services PMI, signaling that Germany’s economy is strengthening compared to the U.S., further supporting the euro’s gains. Additionally, the euro has benefited from improving economic sentiment in the Eurozone, which contrasts with the growing risks of stagflation in the U.S. due to high inflation and slowing growth.

The University of Michigan’s consumer sentiment index for April showed a significant decline to 50.8, which is the lowest level since June 2022. This indicates that U.S. consumers are feeling increasingly pessimistic about the future, which has further fueled concerns about recession risks and the weaker U.S. dollar.

EUR/USD Technical Forecast: Bullish Outlook with Risks

The EUR/USD pair has broken key resistance levels and continues to maintain its bullish momentum as it reaches near 1.1400. Based on the technical indicators, EUR/USD is positioned for potential upward movement towards 1.1450 and beyond. A decisive move above 1.1450 could open the path to 1.1525 and further extensions. However, the RSI nearing overbought levels and the mixed signals from the MACD and CCI suggest that short-term pullbacks could happen before further gains.

On the fundamental side, the weaker U.S. dollar, combined with improving economic conditions in Germany and the Eurozone, supports a bullish outlook for the euro. Geopolitical risks, such as the U.S.-China trade war, continue to weigh on the global outlook, which could add volatility to EUR/USD in the coming months.

EUR/USD: Will the Euro Maintain Its Strength Against the Dollar?

As EUR/USD hovers around 1.1400, traders will be closely monitoring the key support and resistance levels to gauge whether the bullish momentum will continue. If the pair manages to hold above 1.1247, the bullish outlook remains intact, with potential targets at 1.1450 and 1.1525.

Global risks and the outlook for the U.S. dollar will continue to play a significant role in shaping the EUR/USD price action. With U.S. inflation data cooling and rate cuts expected, the dollar may struggle to regain momentum, providing further room for EUR/USD to advance.

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