The EUR/USD currency pair has seen a notable pullback in recent weeks, dropping from its year-to-date high of 1.1572 to trade near 1.1175. This decline has largely been influenced by diverging monetary policies between the European Central Bank (ECB) and the Federal Reserve (Fed), as well as renewed discussions between the United States and the European Union regarding the ongoing trade tensions.
However, with key economic data releases and a critical statement from Fed Chair Jerome Powell expected this week, the pair could be poised for a bullish reversal. The brokers at Tandexo provide a detailed analysis of this topic in their latest article.
Macro Fundamentals: Eurozone vs. US Dynamics
This week is shaping up to be pivotal for the EUR/USD pair as traders brace for economic data and central bank commentary that could influence short-term direction.
European GDP, Employment, and ECB Guidance
Eurostat will release the second estimate of Eurozone Q1 GDP. Analysts expect the data to show that the economy expanded by 0.4% in the first quarter, up from 0.2% in the previous quarter.
On a year-over-year basis, GDP is projected to rise by 1.2%. These numbers will be critical in assessing the health of the bloc and gauging whether the ECB might proceed with further monetary easing.
Also scheduled for release are updated employment and industrial production figures, which will offer a more complete view of the region’s economic strength. Coupled with speeches from ECB Vice President Luis de Guindos and board member Piero Cipollone, the market will gain fresh insight into the central bank’s policy bias. While some ECB officials have leaned toward additional rate cuts, others have advocated for maintaining the current rate path amid signs of economic stabilization.
US CPI, Retail Sales, and Powell‘s Statement
Across the Atlantic, the focus shifts to the Federal Reserve and upcoming economic reports. Last week’s Consumer Price Index (CPI) data revealed a decline in headline inflation to 2.4%, while the core CPI held steady at 2.8%. These figures reinforce the view that inflationary pressures are easing, potentially justifying a dovish stance from the Fed.
Jerome Powell’s upcoming statement is especially critical. Following the Fed’s decision to hold interest rates unchanged, markets are eager to understand whether the central bank sees room for a rate cut in the second half of 2025. Given the recent softening inflation data and concerns about a slowing economy, any hint of a policy shift could act as a catalyst for EUR/USD to rally.
Additional attention will be on the retail sales report from the U.S. Commerce Department, which is expected to shed light on consumer spending patterns. With consumption forming a large portion of U.S. GDP, this data will play a key role in shaping interest rate expectations. Updates on industrial production and manufacturing output will also influence market sentiment.
Technical Analysis: EUR/USD Poised for Recovery?
From a technical standpoint, the EUR/USD pair has displayed signs of gradual weakness since its peak in April. The pair has dropped below the key resistance level of 1.1210, which marks the September 2023 swing high, indicating a potential short-term bearish bias. However, multiple indicators suggest a possible trend reversal.
Supportive Technical Indicators
- 50-day Exponential Moving Average (EMA): Despite recent losses, EUR/USD remains above the 50-day EMA, which currently acts as a dynamic support level. This indicates that the broader trend remains bullish.
- Cup and Handle Pattern: The daily chart has formed a cup and handle pattern, a classic bullish continuation setup that typically precedes an upside breakout. If the pair breaks past 1.1210 convincingly, it could signal a return to bullish momentum.
- Next Resistance Level: Should bullish sentiment resume, the next key resistance lies at 1.1300, a level that would likely attract renewed buying interest.
- Key Support to Watch: The bullish thesis would be invalidated if the pair breaks below the 50-day EMA, currently located around 1.1090. A move below this level could open the door to a deeper correction.
Traders and investors should monitor ECB commentary, economic data releases, and Fed communication closely for fresh trading cues. With macro volatility on the rise and technical indicators pointing to potential upside, the EUR/USD pair could present bullish opportunities in the coming sessions.
Conclusion
As the EUR/USD currency pair trades near a critical juncture, the convergence of economic fundamentals and technical patterns signals the potential for a bullish breakout. With a cup and handle pattern in play, stabilizing Eurozone data, and a possibly dovish Powell, the pair could reclaim higher levels in the short term.
However, sustained bullish momentum will depend on how the market interprets the upcoming data flow and central bank messaging. Traders should stay alert, as volatility is likely to intensify ahead of these crucial events.
