EUR/USD Outlook: Central Bank Decisions, Trade Tensions, and Economic Challenges

29/01/2025

Market Overview
The EUR/USD currency pair remains in focus as central banks in the US and Europe guide their economies through uncertain times. Most experts predicting that the US interest rates will stay unchanged. Markets are also speculating about a possible 50-basis-point rate cut later this year. Meanwhile, the European Central Bank (ECB) is carefully considering its next steps to avoid further economic slowdown while keeping inflation near its 2% target. Adding to the uncertainty, potential US trade tariffs on the eurozone are creating further tension, influencing both the economy and the Euro’s value.

Fundamental Factors
Policy decisions by the Fed and ECB are key drivers for the EUR/USD pair. In the US, December’s strong jobs report (+256,000 jobs),the Fed remains cautious. Having already lowered rates to 4.25%-4.50%, Chair Jerome Powell emphasized that fighting inflation is still a top priority even as the labor market shows signs of softening. In Europe, the ECB is expected to cut rates further but is moving slowly to avoid pushing inflation too low or worsening the region’s economic challenges. Additionally, US President Trump’s decision to delay tariffs on the eurozone has provided some short-term relief for the Euro. However, the long-running trade tensions continue to cast doubts over the region’s economic recovery.

Technical Analysis
On the H4 timeframe, EUR/USD has formed a double top around the 1 .0532 level, influenced both by fundamental and technical factors. Fundamentally, the dovish tone from recent ECB remarks, combined with traders already pricing in 94 basis points of rate cuts for 2025, has added downward pressure to the pair. Technically, the double top can also be attributed to a liquidity sweep above the previous high. Currently, EUR/USD trades below a bearish order block at 1.0453, where the 50 MA and 200 MA are in confluence, making it a significant resistance level. To the downside, 1.0371, the latest swing low, serves as key support and an important level to watch for the pair’s next move.

Conclusion
The EUR/USD pair is moving in a complex environment shaped by central bank decisions, trade tensions, and economic uncertainties. While the Euro could see short-term rallies, its longer-term outlook is clouded by challenges such as trade policies, differing US and European interest rates, and eurozone economic struggles.