EUR/USD Edges Higher on Policy Divergence and Dollar Weakness

Summary:

The Euro edged higher against the U.S. Dollar on Friday, supported by a cooling in geopolitical fears and softer U.S. economic data.

BUY EURUSD

Close Time

CLOSED

1.15251

Entry Price

1.16867

1.14200

1.15467 -0.00230 -0.20%

74.6

Pips

Profit

1.14200

1.15997

Exit Price

1.15251

Entry Price

1.16867

The Euro continued to edge higher against the U.S. Dollar on Friday, navigating a cautious but supportive global landscape as traders digested a mix of geopolitical signals, diverging central bank outlooks, and a softening U.S. economic backdrop. Despite a muted trading session, EUR/USD maintained a firm tone near 1.1510, just off its intraday high of 1.1535, reflecting modest Euro strength amid Dollar softness.

The modest bid in the Euro was fueled in part by a dialed-down geopolitical tone from Washington. U.S. President Donald Trump, addressing concerns over escalating tensions in the Middle East, stated he would decide “within two weeks” on potential U.S. involvement in the ongoing Israel–Iran conflict. While uncertainty remains, the absence of immediate military action helped soothe global risk sentiment, reducing safe-haven demand for the Greenback.

The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of major currencies, traded lower around 98.75 on Friday — slipping below the psychological 99.00 threshold. Investors took note of subdued U.S. economic data, particularly the Philadelphia Fed Manufacturing Index, which held steady at -4.0 in June, disappointing expectations for a slight rebound to -1. The flat reading signals continued weakness in the U.S. manufacturing sector, a drag reinforced by early signs of labor market softening and cooling domestic demand.

Combined with concerns over tariffs and geopolitical volatility, the Fed’s cautiously neutral tone earlier this week contributed to the Dollar's mild retreat. The central bank left its benchmark interest rate unchanged for the fourth consecutive meeting, keeping the federal funds target range at 4.25%–4.50%, as policymakers attempt to balance persistent inflation pressures with signs of a slowing economy.

Headline inflation in the U.S. edged up slightly to 2.4% in May, while core inflation held steady at 2.8%, still well above the Fed's 2% target. Fed Chair Jerome Powell, in his post-meeting remarks, emphasized the need for further data clarity, warning that renewed price pressures — including those stemming from higher tariffs or escalating geopolitical tensions — could delay the Fed's ability to cut rates.

Across the Atlantic, the Euro remains resilient, bolstered by easing inflation and an increasingly transparent European Central Bank (ECB) trajectory. Eurozone headline inflation dipped to 1.9% in May — below the ECB’s 2% mandate for the first time in several months — while core inflation also edged lower. The data, while encouraging, comes against the backdrop of spiking energy prices due to conflict-driven oil market volatility, raising concerns about a resurgence in input costs.

The ECB, which cut rates for the eighth time earlier this week, signaled it may be approaching the end of its easing cycle. Speaking from Italy, ECB Governing Council member François Villeroy de Galhau reiterated that while the door to further accommodation remains open, it would likely take a fresh external shock — such as a full-blown Middle East escalation — to materially alter the bank’s current course. Importantly, Villeroy also noted that the Euro’s relative strength against the U.S. Dollar could help mitigate the inflationary impact of rising oil prices, further reducing the urgency for deeper cuts.

Technical Analysis

From a technical perspective, EUR/USD continues to show strength on shorter timeframes, with price trading above the 50-period exponential moving average (EMA) and maintaining a bullish trajectory aligned with a key bias trendline. The 30-minute chart reveals a classic ABC corrective pattern, now completed with a low at point D — suggesting that the recent correction phase may be over.

Price action is currently flirting with the 1.1510 region, with upside potential targeting resistance at 1.16016 and 1.16311. A sustained move above these levels could open the path toward the 0.618 Fibonacci extension at 1.16867, which also aligns with a broader breakout zone.

That said, the Relative Strength Index (RSI) has entered overbought territory, hinting at a possible short-term pause or consolidation. Traders may want to wait for a retest of broken resistance or a minor pullback before considering long positions, especially as macro risk remains fluid.

TRADE RECOMMENDATION

BUY EURUSD

ENTRY PRICE: 1.1525

STOP LOSS: 1.1420

TAKE PROFIT: 1.16867

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EUR/USD Edges Higher on Policy Divergence and Dollar Weakness

Risk Disclosure