The EUR/USD currency pair has broken below a key support level, marking a critical shift in its recent trajectory. This movement underscores a bearish trend that has taken shape in anticipation of upcoming US inflation data. With geopolitical developments boosting the US dollar and technical indicators flashing warning signs, traders increasingly adopt a risk-off posture toward the euro.
The brokers at TelaraX provide a comprehensive breakdown of this topic in the article.
US-China Trade Talks Propel USD Surge
The EUR/USD exchange rate plunged to its lowest level since April, falling over 4.30% from its recent highs. This sharp decline correlates directly with the US Dollar Index (DXY) spiking to 101, reflecting renewed strength in the greenback. A key driver behind this surge was a positive shift in US-China relations, which has triggered optimism in the global markets.
Over the past weekend, US and Chinese officials held diplomatic talks in Switzerland aimed at reviving trade negotiations. Encouragingly, both parties agreed to suspend tariffs for three months and resume structured trade dialogue. The announcement sent a wave of confidence through equity markets—the Dow Jones Industrial Average rallied over 1,000 points, while the S&P 500 and Nasdaq 100 rose by more than 3%, their strongest performance in months.
These diplomatic breakthroughs not only improve the global macroeconomic outlook but also reduce immediate recession risks in the United States. The trade breakthrough with China, paired with last week’s trade framework agreement with the UK, appears to signal a de-escalation of global trade tensions.
US Inflation Data: The Next Market Driver
Despite the recent market euphoria, investors are now pivoting their focus to critical US inflation data, scheduled for release later today. The Consumer Price Index (CPI) figures are expected to have a significant impact on EUR/USD positioning in the short term.
According to a Reuters poll, economists forecast that the headline CPI will have increased by 0.3% in April, up from a 0.1% decline in March. The year-on-year CPI is expected to hold steady at 2.4%, suggesting that inflation remains modestly anchored.
Meanwhile, the core CPI, which excludes volatile categories such as food and energy, is projected to rise from 0.1% to 0.3% month-on-month, with an annual increase of 2.8%. These figures will be instrumental in shaping Federal Reserve expectations, particularly on the timeline of potential interest rate adjustments.
Should the data come in hotter than expected, it could bolster the US dollar further as traders price in a more hawkish Fed stance, exerting additional pressure on the EUR/USD pair.
EUR/USD Technical Outlook: Bearish Momentum Accelerates
From a technical analysis standpoint, the EUR/USD pair shows clear signs of continuing downward momentum. After peaking at 1.1570 in April, the pair has dropped below the critical support level of 1.1215, which marked the upper boundary of a cup and handle chart pattern—a popular bullish continuation signal that has now been invalidated.
The pair has also slipped beneath its 25-day Exponential Moving Average (EMA), further indicating a shift in sentiment. Leading technical indicators such as the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) have both turned sharply negative, confirming that bearish momentum remains firmly in place.
Price action is approaching the 38.2% Fibonacci Retracement Level, a critical point traders often watch for potential support. If this level fails to hold, the next likely target is the 50% Fibonacci Retracement Level at 1.0875, a zone that could serve as a major psychological and technical floor.
Importantly, a rebound above 1.1215, which now acts as resistance, would invalidate the current bearish outlook and may signal the start of a corrective rally. Until then, the short-term trend remains firmly bearish, and traders may look to sell on rallies or enter short positions targeting deeper retracement levels.
Conclusion: Downward Pressure Likely to Persist
The EUR/USD pair is navigating a complex landscape shaped by geopolitical developments, inflation dynamics, and technical breakdowns. The US dollar’s renewed strength, driven by trade optimism and equity market rallies, has tilted the balance firmly against the euro.
With traders now bracing for the latest US CPI report, the potential for volatility in the EUR/USD remains elevated. Should inflation data reinforce expectations of sticky price pressures, the dollar may extend its advance, potentially pushing the pair toward new multi-month lows.
Traders should monitor both the economic data and technical levels closely, with a particular eye on 1.0875 as a key support target. The overall sentiment suggests that the bearish trend remains intact unless significant data surprises or policy shifts emerge. Until then, selling pressure on the EUR/USD is likely to dominate in the near term.
