EUR/USD is trading above 1.0400 as the US Dollar drops on the back of dwindling fears of a full-blown trade war between the US and China. The investors are of the view that the extent of the trade war will remain restricted, thereby easing the risk premium on the Greenback. Meanwhile, the European Central Bank is expected to continue cutting interest rates, reinforcing market speculation about further policy easing. Even though the Euro underperformed against other major currencies, EUR/USD continues to gain as traders focus on upcoming US economic data, including the ADP Employment Change and ISM Services PMI. Technical indicators are showing cautionary signals; however, important resistance lies at 1.0500, while support stands close to 1.0177, so the pair is in a vulnerable recovery phase.

KEY LOOKOUTS

• US ADP Employment Change and ISM Services PMI for January would have implications on the Federal Reserve’s future monetary policy decisions.

• The European Central Bank is expected to continue reducing interest rates, with traders pricing in three more rate cuts in upcoming policy meetings.

• Market sentiment remains cautious as the US and China impose tariffs, though investors believe the trade war will not escalate further globally.

• EUR/USD faces key resistance at 1.0500, while major support levels lie at 1.0177 and 1.0100, shaping the pair’s near-term price action.

Investors are keeping a close eye on key developments affecting EUR/USD, such as US economic data releases due in the coming days, like the ADP Employment Change and ISM Services PMI, which may help guide the Federal Reserve’s policy course. On the other hand, the European Central Bank continues to cut interest rates, with the market awaiting more cuts given its confidence in inflation returning to target levels. Trade tensions between the US and China remain a problem, but the relatively narrow scope of the situation had pushed fears over a full-scale global trade war to the backburner, diminishing the risk premium on the US Dollar. In technical terms, EUR/USD remains vulnerable to a critical resistance level at 1.0500 and may find support at 1.0177 and 1.0100 to determine the next direction.

EUR/USD continues to gain as fears of a trade war ease and ECB rate-cut expectations weigh on the US Dollar. Investors await key US economic data, including the ADP Employment Change and ISM Services PMI, which could influence the Fed’s policy stance. Meanwhile, technical resistance at 1.0500 and support at 1.0177 will shape the pair’s near-term direction.

• The pair goes higher as the US Dollar weakens on the back of more alleviated trade war concerns and reduced risk premium.

• US ADP Employment Change and ISM Services PMI would be out and could impact the Federal Reserve’s policy outlook.

• Interest rate cuts are expected by the European Central Bank and monetary policy easing is already priced in the markets.

• Investors believe that the trade war will not spread across the globe and see fears of an economic slowdown.

• President Trump lets loose on the EU: Tariffs are in the cards. Adds to EUR’s unclear direction.

• The level remains a strong barrier for EUR/USD, and a breach above can be seen as a further sign of bullish strength.

• These levels become significant support downwards, and their breach can be used as a sign of renewed bearish pressure on the pair.

It is now a fledging currency as EUR/USD surged above 1.0400 after a weak US Dollar amid slight improvements in the trade war concerns and eventually in wait of further interest rate cuts by the European Central Bank (ECB). Investors are keenly awaiting key US economic data, including ADP Employment Change and ISM Services PMI, which may provide direction to future policy decisions by the Federal Reserve. The US Dollar Index (DXY) has declined as market participants assume that the trade war between the US and China will remain limited in scope, reducing the Greenback’s risk premium. However, concerns persist about potential tariff threats from President Trump on the European Union, which could impact the Euro’s stability in the coming weeks.

EUR/USD Daily Price Chart

TradingView Prepared by ELLYANA

On the technical front, EUR/USD faces significant resistance at the 1.0500 level, which, if breached, could signal further bullish momentum. Meanwhile, key support levels at 1.0177 and 1.0100 provide downside protection, with a break below these points potentially leading to renewed bearish pressure. The European Central Bank’s continued monetary easing stance has also weighed on the Euro, as traders anticipate further rate cuts to support economic stability. As investors find their way through these macroeconomic and geopolitical changes, EUR/USD continues to trade in a volatile range, waiting for more directional signals from upcoming economic data and policy decisions.

TECHNICAL ANALYSIS

EUR/USD is still in a cautious recovery mode, trading just below the 50-day Exponential Moving Average (EMA) at 1.0440, which indicates that the trend is still bearish. The pair is facing strong resistance at the psychological level of 1.0500, and a decisive break above this could trigger further bullish momentum. Meanwhile, the 14-day Relative Strength Index (RSI) oscillates within the neutral 40.00-60.00 range, suggesting a lack of strong directional bias. On the downside, key support levels are observed at 1.0177 and 1.0100, with a break below these levels potentially leading to increased bearish pressure. EUR/USD remains stuck in a trading range as the market fundamentals continue to be analyzed by traders and wait for the right trigger that will take the currency pair on its next major move.

FORECAST

If EUR/USD breaks above 1.0500, there is still potential for further gains. A continuation of the trend beyond this point could lead to a bullish surge to the psychological resistance at 1.0600. Positive Eurozone economic data in combination with a softer US Dollar, which is being traded down on expectation of the Federal Reserve to cut rates, may continue fueling buying. Moreover, if risk-on sentiments persist and concerns of trade tensions between US and China keep dwindling, investors may prefer the Euro, hence continuing to push the pair higher.

Supports for EUR/USD are strong at 1.0177 while 1.0100 is the all-important level. A break below these levels could then open the door for deeper losses, potentially sending the pair down to parity if bearish momentum intensifies. Factors that could drive a decline include stronger-than-expected US economic data, leading to renewed speculation that the Federal Reserve may keep interest rates higher for longer. Moreover, any increase in trade tensions, especially if the US imposes tariffs on the European Union, would put a heavy burden on the Euro and push EUR/USD down.