EUR/USD Analysis: Consolidation Amid Economic and Political Uncertainty | Errante
Market Overview
The EUR/USD is consolidating the 4.4% rally last week, a move never seen since COVID-19. The current sentiment is driven by European economic developments, political change in Germany and weaker US data. The key factors favor Euro, but trade uncertainty and geopolitical risks limit the gains. Depending on central banks and macroeconomic events, the pair may range between 1.0770 and 1.0850 in the near term.
Fundamental Analysis
Germany’s industrial sector performance strengthened the Euro. Industrial Output in January rose by 2% m/m, exceeding the expectations. However, the trade balance for Germany remained weak, with only a EUR 16 billion surplus, which added to market uncertainty.
ECB policies remain a key driver for the Euro. The officials hinted at a rate cut pause in April, with the markets currently pricing in a 17 bps cut. The coming-up speeches from ECB members will further clarify the situation.
In the US, the greenback significantly lost in the last week, with the Dollar Index falling more than 3%. Disappointing macroeconomic data and Trump’s trade policies contributed to the sell-off. Recent tariffs on Mexico and Canada have raised a fear of economic slowdown. Weak employment data, including lower-than-expected NFP readings and a 0.1% uptick in unemployment, fueled the EUR/USD rally.
Geopolitics remain a key concern. The US and Ukrainian officials are set to meet in Saudi Arabia to debate the framework of a peace deal to end the Russia-Ukraine war. Any further progress may impact the market sentiment and bring volatility.
Technical Analysis
The market is presently fluctuating within a 123-pip range, featuring a daily inside bar candle pattern. Notably, there’s an unconfirmed order block providing support around the 1.0796 level. Last week, the pair saw a strong rise of 500 pips, creating several fair-value gaps that serve as liquidity points for the market and could be tested in the near future.The previous day’s high is broken, and the RSI (H4) stands at 70.
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