EUR/USD Targets Short-Term Triangle Breakout Amid Market Volatility

Market Overview

On Wednesday, the dollar faced declines as traders grappled with assessing U.S. President Donald Trump’s tariff plans and the potential pressure from the new administration to impose measures on major trading partners. Late Tuesday, Trump announced that his administration is discussing the implementation of a 10% tariff on imports from China starting February 1, the same day he indicated that Mexico and Canada would face tariffs of approximately 25%. He also noted that Europe could be impacted by tariffs on European imports. However, despite signing a flurry of executive orders after his inauguration on Monday, he has so far refrained from imposing tariffs on the EU.

This has kept euro buyers optimistic, bolstering support for the EUR/USD pair. However, this optimism may prove to be short-lived.

Technical Analysis

On the hourly chart, EUR/USD is consolidating within a rising triangle pattern, signaling indecision between buyers and sellers. The pair is edging closer to the triangle’s upper boundary at 1.04350, supported by increasing bullish momentum. A breakout above this resistance could indicate the start of a fresh bullish rally, with immediate targets at the Fibonacci extensions of 1.04468, 1.04617, and 1.04782.

Momentum indicators are supporting the bullish scenario. The RSI remains in the overbought territory, reflecting heightened buying interest, while the MACD confirms diminishing seller momentum. Furthermore, price action is approaching a critical inflection point, emphasizing the significance of a potential breakout.

However, if sellers successfully defend the upper boundary of the triangle, the pair could reverse lower. In this case, key support levels are at 1.04185 and 1.03918, where further downside pressure could materialize if the latter breaks.

Oscillators and Risk Warnings

RSI: Bullish, signaling strong buying momentum but nearing overbought levels.

MACD: Mixed, indicating waning selling pressure but awaiting confirmation of bullish momentum.

Moving Averages: Mixed, reflecting the consolidation phase within the triangle pattern.

Key Technical Levels

• Resistance Levels: 1.04350, 1.04468, 1.04617, 1.04782
• Support Levels: 1.04185, 1.03918

Fundamental Factors

From a fundamental perspective, attention is focused on two major events. In the U.S., the Leading Economic Index for January is set for release, with expectations pointing to another decline following a 0.3% increase in the prior month. A stronger-than-expected reading could bolster the dollar, as it would highlight resilience in the U.S. economy despite broader global challenges.

Meanwhile, in Europe, ECB President Christine Lagarde is scheduled to speak later today, potentially offering insights into the central bank’s stance on monetary policy and the economic outlook for the eurozone. Her comments could provide clarity on whether the ECB will maintain its current course of rate hikes or adopt a more cautious approach.

These events are likely to inject volatility into the EUR/USD pair, making the resolution of the current triangle pattern even more significant.

Conclusion

EUR/USD remains at a critical juncture, with the potential for a bullish breakout or a bearish reversal hinging on key technical and fundamental factors. A sustained move above 1.04350 could pave the way for further gains, while a break below 1.04185 would invalidate the bullish scenario and favor the sellers.

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