EUR/USD Challenges 1.0500, Soaring US Yields Limit UpsideMarket

26/02/2025

Market Overview

The EUR/USD price rallied on Tuesday, surpassing the 1.0500 psychological mark. However, the price could not hold on to the top and retreated slightly. The barrier remains unbroken for the eighth consecutive session

Fundamental Overview

The movement came as US economic growth concerns mounted after a dismal consumer sentiment report. Moreover, Trump’s recent trade war threats also deteriorate the sentiment of risk. However, market optimism persists as there is a probability that President Trump will delay his tariff plans.The US dollar surged as the Treasury yields soared. The 2-year and 10-year yields rose to 4.13% and 4.33% respectively. The dollar index also advanced to 106.50, adding selling pressure on the Euro during the early European session.However, the Euro was supported by some fiscal developments in Germany. According to reports, Europe’s largest economy considers a 200 billion euro defence fund. Meanwhile, CDU leader Merz hinted at financial reforms to the debt brake so tax reliefs may be provided along with increased military spending.Meanwhile, investors are cautious as the European Central Bank’s meeting is due next week, and another rate cut is expected. ECB officials have given mixed signals, with Joachim Nagel suggesting a rate cut if inflation persists, while Isabel Schnabel warned against the excessive cuts.ING analyst Chris Turner noted that the currency pair could revisit the 1.0400 level or even lower. Similarly UOB analysts also pointed out that the break of 1.0480 could pour water on the bullish momentum.The three major events to watch are the US Q4 GDP, the US Core PCE Index and the German CPI. These events can provide stimulus to the markets and provide guidance for the future path.

Technical Analysis

Technically, the EUR/USD remains under pressure around the 1.0500 mark. The major resistance lies at 1.0530. For now, the pair consolidates in a tight range in the absence of any catalyst.A breakout above 1.0530 suggests a bullish continuation towards 1.0575 ahead of 1.0600. Alternatively, the sustained move below 1.0500 could gather selling traction and push towards 1.0450 ahead of 1.0400 and then 1.0375.