EUR/USD Climbs to 1.0480 Amid Positive Market Sentiment, but Underlying Risks Remain

Economic

Summary:

EUR/USD continues its upward trajectory, reaching a fresh fortnight high near 1.0480 on Friday, bolstered by market optimism surrounding delayed tariffs, geopolitical easing, and softening safe-haven demand for the US dollar.

BUY EURUSD

Close Time

CLOSED

1.04600

Entry Price

1.06000

1.03800

1.17465 +0.00071 +0.06%

13.6

Pips

Profit

1.03800

1.04736

Exit Price

1.04600

Entry Price

1.06000

EUR/USD continued its impressive run on Friday, marking its fourth consecutive day of gains as the major currency pair surged to a fresh high near 1.0480. The bullish momentum has been attributed to several positive market drivers, including a delay in the imposition of reciprocal tariffs by the United States, growing optimism over a potential ceasefire between Russia and Ukraine, and a weakening US dollar, all of which have helped to fuel a more favorable sentiment for risk-sensitive assets like the euro.

The key catalyst for the euro’s strength on Friday came from the United States, where President Donald Trump’s decision to delay the imposition of reciprocal tariffs has provided a significant boost to risk appetite. In a move to ease tensions in global trade, Trump instructed US Treasury and Commerce officials to work on the details of the tariffs but confirmed that they would not come into effect before April 1. This delay in the tariff imposition has alleviated concerns about an immediate trade war between the US and its trading partners, giving investors more time to negotiate terms.

As a result, risk appetite has improved, with investors hopeful that further escalation in the trade war will be avoided. The market had initially feared that Trump would move quickly to announce these tariffs, and the delay in implementation has been seen as a positive development for global trade stability, which benefits the Eurozone’s economy.

Another factor contributing to the euro’s rise is the easing of geopolitical tensions, particularly the ongoing Russia-Ukraine conflict. Although the situation remains far from resolved, there has been growing speculation in the market that the two sides may be moving towards a truce. If a peace deal were to materialize, it would significantly reduce the energy supply crisis and supply chain bottlenecks that have been a major hindrance to the Eurozone’s economic recovery. This prospect has lent a degree of optimism to the single currency, offering a temporary respite from the uncertainty that has weighed heavily on the region in recent years.

Despite the favorable developments, some caution remains for EUR/USD bulls. Market participants are wary of the European Central Bank (ECB)’s dovish stance, which could undermine the euro’s upward momentum in the longer term. While the ECB has provided support to the eurozone economy through accommodative monetary policy, the market is pricing in the likelihood of further interest rate cuts.

In fact, ECB officials, including Croatian central bank Governor Boris Vujčić, have signaled that additional rate cuts are on the horizon. Last month, the ECB reduced its Deposit Facility rate by 25 basis points to 2.75%, and Vujčić’s comments have only strengthened expectations that further cuts are likely, with some market observers even predicting three additional rate cuts this year. The possibility of an even more dovish ECB, particularly if inflationary pressures in the region remain subdued, could dampen the euro’s momentum and bring the currency pair back under pressure.

Additionally, concerns over a widening interest rate differential between the ECB and the Federal Reserve (Fed) have emerged. The Fed is expected to keep rates in a restrictive range of 4.25%-4.50% for an extended period, while the ECB’s dovish stance might see the euro facing a tougher time competing against a more attractive US dollar. A robust US dollar remains a key headwind for the euro, particularly as the Federal Reserve signals its intent to maintain a hawkish policy stance to combat persistent inflationary pressures and an overheated labor market.

Another contributing factor to EUR/USD’s recent rally has been the weakness of the US dollar. The US Dollar Index (DXY), which tracks the greenback against a basket of major currencies, dropped to a near four-week low below 107.00 on Friday as safe-haven demand for the dollar has subsided. The delay in the implementation of tariffs and the positive sentiment surrounding a potential resolution to the Russia-Ukraine conflict have weighed on the dollar, which typically benefits from global uncertainties.

However, while the US dollar remains on the backfoot for now, its outlook has not turned bearish. Investors are still bracing for the Federal Reserve to maintain a restrictive interest rate policy, which is expected to keep the greenback supported in the medium term. Recent comments from Fed Chair Jerome Powell have reinforced this view, with Powell signaling that the central bank will keep interest rates high for an extended period to rein in inflation. In his testimony before Congress this week, Powell stated that the Fed would maintain “policy restraint for longer” as long as the economy remains resilient and inflation does not move towards the 2% target.

This means that while the dollar is currently under pressure, its long-term prospects remain solid, especially if inflationary pressures persist and the labor market remains strong.

Looking ahead, market participants will focus on the upcoming US Retail Sales data for January, set to be released at 13:30 GMT. A key measure of consumer spending, the Retail Sales report is expected to show a modest decline of 0.1% in January, following a 0.4% expansion in December. A weaker-than-expected retail sales print could further dampen sentiment around the US dollar and provide additional support for EUR/USD.

Technical Analysis

From a technical perspective, EUR/USD is showing clear signs of bullish momentum. The pair recently broke above the key level at 1.0455, closing the daily candlestick above it and opening the door for further upside movement. The 50-period exponential moving average (EMA) is providing support, indicating that the short-term trend remains bullish.

We will be watching for the price to continue its climb towards the psychological resistance level at 1.0500. A pullback to the 1.0460 entry level could offer a potential buying opportunity, with a stop loss placed at 1.0381. If the bullish momentum holds, the next target for EUR/USD could be 1.0600, a level that aligns with both a pullback resistance and a 100% Fibonacci projection.

TRADE RECOMMENDATION

BUY EURSUD

ENTRY PRICE: 1.0460

STOP LOSS: 1.0380

TAKE PROFIT: 1.0600

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EUR/USD Climbs to 1.0480 Amid Positive Market Sentiment, but Underlying Risks Remain

Technical Analysis

Risk Disclosure