Currency Pairs to Watch
EUR/USD
The euro has demonstrated exceptional performance, appreciating 5.5% against the US dollar in the previous month. As confidence in US assets wanes, the euro — the second largest global reserve currency — has attracted significant capital flows. European equities have similarly gained momentum as global investors pursue portfolio diversification strategies. Proposed fiscal expansions in infrastructure and defence have enhanced Euro area growth projections.
However, several counterbalancing factors may constrain the euro’s upward trajectory. The European Central Bank (ECB) implemented a 25-basis-point interest rate reduction earlier this month, citing persistent disinflationary trends. Additionally, the ECB has expressed concern regarding the potential adverse impact of US tariff policies on European economic growth. Market consensus indicates expectations for an additional two to three rate reductions before year-end.
Technical analysis reveals EUR/USD within a robust ascending channel with medium-term potential to target the 1.19 level, assuming the current rally matches the magnitude observed between September 2022 and July 2023. However, considering the steep year-to-date appreciation, a consolidation phase may precede further advances. Support levels are anticipated at approximately 1.12, with a critical secondary support at the 200-day simple moving average (SMA) of 1.07.
The forthcoming Euro Area Q1 GDP data and inflation flash estimates will provide critical insights into the currency pair’s directional bias.
