- EUR/USD rises toward 1.0480, driven by positive market sentiment from several factors.
- US President Trump’s reciprocal tariffs are unlikely to be implemented before April 1.
- The ECB is expected to further cut interest rates, while the Fed is likely to maintain a restrictive stance.
EUR/USD extends its winning streak for the fourth consecutive trading session on Friday, reaching a fresh two-week high around 1.0480 and eyeing the psychological resistance at 1.0500. The pair strengthens as demand for risk-sensitive assets rises, driven by several favorable factors.
Market sentiment has improved as US President Donald Trump’s reciprocal tariffs are unlikely to be implemented before April 1. On Thursday, Trump instructed treasury and commerce officials to prepare for tariffs, but Commerce Secretary nominee Howard Lutnick indicated that new tariffs could be ready by April 1. This delay reduced concerns over an immediate global trade war, easing fears that Trump would announce tariffs sooner.
Investors believe US trading partners now have time to negotiate with Trump, which could mitigate the negative impact of the potential trade war.
Meanwhile, the European Commission has criticized Trump’s tariff plans, calling them a step "in the wrong direction," and reaffirmed that the European Union (EU) will respond "firmly and immediately" to any unjust trade barriers.
In addition to the tariff delay, optimism surrounding a potential Russia-Ukraine truce has provided a significant boost to the Euro. A resolution to the three-year conflict could ease the Eurozone's energy crisis and supply chain disruptions.
Despite these tailwinds, there are concerns that widening interest rate differentials between the European Central Bank (ECB) and the Federal Reserve (Fed) could eventually weigh on the Euro. ECB officials have indicated that further interest rate cuts are likely, with a 25 basis point reduction to 2.75% already made last month. ECB policymaker Boris Vujčić noted that the market's expectations of three more cuts this year were "not unreasonable," suggesting a shift in policy could be coming in March.
Daily Market Movers: EUR/USD Gains Amid US Dollar Weakness
- EUR/USD benefits from a weaker US Dollar, with the safe-haven demand for the Greenback subsiding due to the delay in Trump’s tariffs and hopes for peace between Russia and Ukraine. The US Dollar Index (DXY) fell to a fresh four-week low below 107.00.
- However, the US Dollar outlook remains cautious, as traders expect the Fed to keep interest rates steady in the 4.25%-4.50% range for an extended period. The CME FedWatch tool suggests a near 50% chance of a rate cut by July.
- Traders are confident that the Fed will maintain a restrictive policy stance longer due to persistent inflation and strong labor demand. In his recent testimony, Fed Chair Jerome Powell indicated that the Fed could maintain "policy restraint" if inflation does not approach the 2% target.
- Investors will focus on US Retail Sales data for January, set to be released at 13:30 GMT. A 0.1% decline is expected after a 0.4% increase in December.
Technical Analysis: EUR/USD Eyes 1.0500
EUR/USD continues its recovery, climbing near 1.0480 during European trading hours. The pair recently moved above the 50-day Exponential Moving Average (EMA) at 1.0428, signaling further bullish momentum.
The 14-day Relative Strength Index (RSI) is approaching 60.00, and sustained movement above this level could trigger additional gains.
On the downside, the February 10 low at 1.0285 serves as key support. On the upside, the January 27 high of 1.0533 remains a critical resistance level for the Euro bulls.
