Daily Price Outlook
During the European trading session on Wednesday, the EUR/USD pair remained flat near the 1.1370 mark, consolidating within a tight range as investors awaited the highly anticipated US Federal Reserve’s monetary policy decision. The pair's movement reflects broader market indecision, driven by both political stabilization in Europe and economic uncertainties in the US.
EUR/USD Stability Backed by German Political Clarity and Euro Strength
On the EUR front, the shared currency found some support following the confirmation of Conservative leader Friedrich Merz as Germany’s new Chancellor. Merz's successful second bid has reduced fears of political instability in the Eurozone’s largest economy.
Markets reacted positively to expectations that his leadership will advance previously approved defense spending and economic support measures, potentially strengthening the Euro and German assets.
Despite this, the Euro's upside remains capped, as the European Central Bank (ECB) is widely expected to continue its rate-cutting cycle in June. Policymakers remain focused on supporting the economy in the face of fresh trade-related shocks, particularly from the US.
ECB officials are prioritizing economic resilience over inflation concerns, especially with Eurozone inflation expected to return to the 2% target this year.
Weak EU Retail Sales and Tariff Concerns Weigh on the Euro
On the data front, the march EU Retail Sales disappointed, falling 0.1% month-on-month against expectations for flat growth.
The year-on-year figure also underperformed, growing only 1.5% versus a forecast of 1.6%, with previous data revised lower. These figures reflect slowing consumer activity, adding to concerns about Eurozone economic momentum.
Moreover, the European Commission is considering retaliatory tariffs in response to new US trade measures. EU Trade Commissioner Maros Sefcovic confirmed that Brussels is exploring countermeasures against approximately €100 billion worth of US goods if talks fail.
Although US President Trump has delayed reciprocal tariffs by 90 days, uncertainty continues to linger, limiting EUR/USD gains.
EUR/USD Awaits Fed Decision Amid US Economic Tensions and Trump Pressure
Looking forward, traders will keep a close eye on the US Federal Reserve, as markets expect interest rates to stay at 4.25%-4.50%. The CME FedWatch Tool fully prices in a pause, but traders will focus on Chair Jerome Powell’s press conference for hints about future policy.
The Fed has made it clear that there won’t be any immediate changes unless there are signs of weakness in the labor market or economic growth.
On the data front, April’s Nonfarm Payrolls (NFP) report showed steady job gains, which makes rate cuts less likely. Meanwhile, the US economy contracted by 0.3% in Q1, mainly due to a rise in imports ahead of new tariffs.
Former President Trump continues to push the Fed for rate cuts, criticizing Powell’s stance even with inflation easing in food and energy sectors, and even threatening Powell's removal.
Therefore, the Fed’s decision to keep rates steady and the mixed economic data could strengthen the US dollar, pressuring the EUR/USD pair.
EUR/USD – Technical Analysis
EUR/USD is trading around $1.1365, consolidating within a descending wedge pattern, a structure typically associated with potential bullish reversals.
The pair is testing the 50-day Simple Moving Average (SMA) at $1.1323, which has acted as dynamic support in recent sessions.
A series of higher lows on the recent bounce from the $1.1265 level suggests building bullish momentum, supported by a minor trendline connecting recent lows.
Candlestick analysis reveals a potential bullish engulfing pattern forming just above the $1.1323 support, reinforcing the bullish case.
However, the pair faces immediate resistance at $1.1380, where a bearish shooting star formed recently, indicating possible short-term selling pressure.
A break above this level could open the door to the next resistance at $1.1421, aligning with the recent swing high. Beyond this, the $1.1452 level stands as a key barrier, representing a critical psychological level for bulls.
The Relative Strength Index (RSI) is currently at 58.75, just below the 60 level, suggesting the pair has room to extend its recovery before entering overbought territory.
However, a break below the immediate support at $1.1323 could trigger a deeper pullback toward $1.1298 or even the critical $1.1265 support, aligning with the lower wedge boundary.
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