EUR/USD Struggles for Direction as ECB and Weak Data Weigh, Tariff Risks Loom
EUR/USD ended Thursday near flat after an initial rally following the ECB rate cut and weaker-than-expected eurozone Q4 GDP faded. The pair hit a session low of 1.03905 in Europe before rebounding to 1.0468 on EBS as U.S. Q4 GDP and jobless claims data softened Treasury yields, allowing the euro some breathing room. However, as U.S. yields firmed slightly and German-U.S. spreads widened, EUR/USD erased its gains, closing the session near 1.0420. Investors are now weighing the impact of further ECB easing against looming U.S. tariffs, with President Trump expected to announce his decision on February 1.
Technical indicators reflect market indecision. Daily and monthly doji candles suggest hesitation among traders as EUR/USD remains stuck between key support and resistance levels. Immediate resistance is at 1.0468, with further hurdles at 1.0500 and the 21-DMA. Support lies at 1.0390, with a break below targeting 1.0350 and, potentially, parity should bearish momentum build. The longer-term downtrend that began in September remains intact, with price action consolidating near recent lows.
The next catalysts for EUR/USD include U.S. PCE inflation data and trade policy developments. The Fed’s preferred inflation measure could influence rate expectations, while a tariff announcement from the Trump administration may increase dollar demand if the U.S.-eurozone yield spread widens further. If trade tensions escalate, the euro may struggle to hold support, increasing the likelihood of a move toward parity. Until then, EUR/USD is likely to remain choppy, with risk sentiment dictating short-term moves.