EUR/USD retreats ahead of ECB interest rate announcement

EUR/USD slips toward 1.1350 during Thursday’s European trading session, as investors brace for the European Central Bank’s (ECB) upcoming interest rate decision, scheduled for 12:15 GMT. The ECB is widely expected to lower its key borrowing rates by 25 basis points (bps), bringing the Deposit Facility Rate and the Main Refinancing Operations Rate down to 2.25% and 2.4%, respectively.

Market sentiment remains firm that the ECB will implement its seventh rate cut since launching its easing cycle in June—and its sixth consecutive cut—as inflation in the Eurozone shows signs of aligning with the central bank’s 2% target by year-end. Concerns over a weakening economic outlook are also reinforcing the case for continued monetary easing.

While a rate cut is largely priced in, investor focus will shift to ECB President Christine Lagarde’s post-decision press conference for forward guidance. Markets will be looking for hints on whether Lagarde still views current rates as restrictive. A reaffirmation of that stance could raise expectations of further rate cuts in the months ahead.

Beyond monetary policy, market participants are also closely watching developments around U.S. President Donald Trump’s tariff strategies. Investors are eager to understand the potential fallout on the Eurozone economy and how the ECB might respond to protect regional growth.

The EU is seen as particularly vulnerable to Trump’s trade policies, despite efforts by the European Commission to secure fairer terms with Washington. Meanwhile, continued tensions between the U.S. and China could prompt Beijing to reroute exports toward Europe, leveraging its competitive pricing to gain market share.

Daily Market Movers Digest: EUR/USD Slides as US Dollar Rebounds

• EUR/USD retreats from the key psychological level of 1.1400 as the US Dollar (USD) attempts to recover from recent lows. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, climbs back near 99.60, supported by renewed buying interest amid encouraging developments in US-Japan trade talks.
• On Wednesday, former President Donald Trump shared an update on TruthSocial, highlighting substantial progress in trade discussions between Japan’s economic revitalization minister Ryosei Akazawa and US officials. “A Great Honour to have just met with the Japanese Delegation on Trade. Big Progress!” Trump posted, fueling optimism among market participants.
• Investors view this progress as a positive step that could ease global economic uncertainty. Trump’s apparent preference for bilateral negotiations over sweeping tariffs is being interpreted as a stabilizing approach for international trade relations.
• However, ongoing tensions between the US and China continue to cast a shadow over global markets. The trade dispute has now shifted from tariff levels to determining which side will take the initiative in resuming negotiations. On Tuesday, White House press secretary Karoline Leavitt stated that President Trump is open to a deal, but the onus is on Beijing. “The ball is in China’s court: China needs to make a deal with us, we don’t have to make a deal with them,” she said, according to Reuters.
• Domestically, concerns over rising inflation and a potential slowdown in economic growth are weighing on sentiment. On Wednesday, Federal Reserve Chair Jerome Powell acknowledged that economic activity likely decelerated in Q1 2025 due to policy-related uncertainties. Still, he maintained a cautiously optimistic outlook, emphasizing a "wait and see" stance until more clarity emerges.

Technical Outlook: EUR/USD Struggles Below 1.1400

EUR/USD faces downside pressure after failing to hold above 1.1400 in Thursday’s European trading. Despite the pullback, the broader trend remains bullish, with all key Exponential Moving Averages (EMAs) — from short to long term — pointing upward.

The 14-day Relative Strength Index (RSI) remains above 70.00, signaling strong bullish momentum, although overbought conditions may lead to short-term consolidation.

On the upside, 1.1500 stands as the next major resistance level. On the downside, the April 11 low at 1.1190 will act as crucial support for Euro bulls, should bearish sentiment intensify.