- EUR/USD slipped back below 1.1200 on Friday, hitting four-week lows.
- The Greenback closed its third consecutive week of gains on easing trade jitters.
- Trade tensions remain in centre stage ahead of the upcoming US-China talks.
The Euro (EUR) managed to regain some composure toward the end of the week, sparking a daily reversal in EUR/USD after easing below the 1.1200 level, or multi-week troughs, early on Friday. The recovery, however, did not change the pair’s weekly performance, which reached the third drop in a row.
The intense sell-off in the pair, and the rest of the risk universe, came in tandem with the marked recovery in the US Dollar (USD) on the back of the resurgence of hopes on the trade front. That said, the US Dollar Index (DXY) finally managed to clear the psychological 100.00 barrier, although how sustainable this breakout is remains to be seen.
A glimmer of hope emerged on the trade front
The ongoing correction in EUR/USD remains in place following post-ECB tops around 1.1570 reached in April. The move came exclusively in response to the U-turn in the Greenback, which was in turn triggered by the absence of announcements regarding new tariffs, as well as a more constructive stance from the White House.
On the latter, President Trump announced on Thursday a trade agreement with the United Kingdom (UK). The United States (US) has agreed to reduce import tariffs on a limited number of British vehicles and allow certain steel and aluminium products to enter the country without duties, as part of a new bilateral agreement with the United Kingdom. The arrangement eases some of the pressure on key UK sectors following the reintroduction of tariffs by President Donald Trump earlier this year, although a 10% tariff will remain in place on most UK goods, limiting the overall scope of the relief.
Adding to the generalised optimism, senior US and Chinese officials will meet in Switzerland this weekend for high-level negotiations.
The ongoing trade tensions between the world’s two largest economies, alongside President Trump’s recent decision to impose tariffs on several other countries, have disrupted global supply chains, rattled financial markets, and raised concerns over a potential slowdown in global economic growth.
Policy divergence puts Euro on the defensive
Diverging central bank outlooks remain a core driver of the Euro’s underperformance. While the Federal Reserve (Fed) held its benchmark rate steady this week, it reiterated its data-dependent hawkish bias.
By contrast, the European Central Bank (ECB) delivered a 25 basis point cut last month—its second in three meetings—bringing its key rate to 2.25%. Markets are now pricing in another cut as early as June, underscoring the widening transatlantic monetary policy gap.
Technical outlook: Heavy resistance looms
EUR/USD remains capped beneath its 2025 high of 1.1572 (April 21). Beyond that, key resistance lies at the psychologically important 1.1600 mark and the October 2021 top of 1.1692.
On the downside, short-term support sits at the 55-day simple moving average (SMA) at 1.1005, with deeper cushions at the more significant 200-day SMA at 1.0791 and the weekly trough at 1.0732 (March 27).
Momentum indicators suggest further corrective moves may be in store. The Relative Strength Index (RSI) has eased to neutral territory near 52, while the Average Directional Index (ADX) near 41 points to strong but potentially exhausted trend momentum.
EUR/USD daily chart
Outlook: Tug-of-war?
The euro’s path forward remains clouded by competing forces. Speculative positioning and improving global trade sentiment offer support, but the widening Fed-ECB policy gap and dollar resilience could continue to weigh on the single currency. With central bank decisions and trade developments poised to drive headlines, EUR/USD is likely to remain volatile and reactive in the near term.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
