EUR/USD Price Forecast: Some extra consolidation should not be ruled out

EUR/USD extended its weekly uptrend on Wednesday, climbing back above the 1.0500 mark as the US Dollar (USD) eventually succumbed to the selling pressure, leaving the US Dollar Index (DXY) almost unchanged around 106.30.

The Greenback’s price action followed intense jitters around US tariffs, while market reassessment over the health of the US economy, especially in light of softer fundamental data in recent weeks, remained in place.

Tariffs loom large 

Worries about further tariff announcements kept markets on edge on Wednesday, particularly as the deadline for imposing tariffs on US imports from Canada and Mexico drew closer. President Trump underscored that these tariffs would “proceed as scheduled,” adding to the uncertainty.

Tariffs can shake up currencies in multiple ways. If they drive inflation higher, the Federal Reserve (Fed) could stay hawkish for longer, offering support to the USD. Conversely, a slowdown in economic activity due to trade barriers might prompt the Fed to lean dovish. Meanwhile, any move to slap tariffs on EU goods could weigh on the Euro (EUR), potentially dragging EUR/USD lower, while opening the door to a move toward parity.

Central banks in the spotlight 

The Federal Reserve recently held interest rates at 4.25%–4.50%, citing strong US growth, steady inflation, and a healthy labour market. In congressional testimony, Fed Chair Jerome Powell stressed it’s too soon to consider rate cuts, pointing to ongoing inflationary pressures and job data as key policy drivers.

Minutes from the latest FOMC meeting echoed these concerns, highlighting that ongoing trade disputes could further lift consumer prices. This scenario would complicate the inflation outlook and keep the Fed cautious about any near-term policy shifts.

Over in Europe, the European Central Bank (ECB) trimmed its main rate by 25 basis points, aiming to bolster the eurozone’s sluggish growth. ECB President Christine Lagarde dismissed calls for a heftier 50-basis-point cut, preferring a data-dependent, incremental approach. Despite persistent trade uncertainties, she expressed confidence that inflation would hit the ECB’s target by 2025, suggesting any additional easing will be measured.

On Tuesday, Governing Council member Isabel Schnabel questioned whether the ECB’s 2.75% deposit rate was effectively restraining the eurozone economy, while Joachim Nagel struck a more upbeat note on the inflation outlook—though both left the door open for further cuts if inflation dips to 2% this year.

Technical levels to watch

Extra gains in EUR/USD area expected to meet the next resistance at the monthly peak of 1.0528 (February 26), closely followed by the YTD high of 1.0532 (January 27). Further up comes the interim 100-day SMA at 1.0537 (100-day Simple Moving Average), seconded by the Fibo retracement of the September-January drop at 1.0572 and then the December 2024 top of 1.0629.

On the flip side, there is initial support at the weekly low of 1.0282 (February 10), prior to the February low of 1.0209 (February 3), and the 2025 bottom of 1.0176 (January 13).

Technicals offer a mixed picture. While the Relative Strength Index (RSI) near 58 suggests improving bullish momentum, the Average Directional Index (ADX) below 14 points to a weak overall trend.

EUR/USD daily chart

Near-term outlook remains unclear

In the short term, EUR/USD remains at the mercy of shifting trade policies, diverging central bank decisions, sluggish eurozone growth, and evolving political dynamics in Germany. Without clearer signals on tariffs or more definitive guidance from the Fed and ECB, the pair could remain range-bound, at least until the dust settles on these key risk events.