EUR/USD Shows Resilience Near 1.0900 Amid US Recession Fears and Global Economic Concerns

Economic

Summary:

EUR/USD remains resilient near 1.0900 despite a slight dip, buoyed by market optimism surrounding potential ceasefire talks in Ukraine and German economic policy changes.

BUY EURUSD

Close Time

CLOSED

1.09098

Entry Price

1.12000

1.07400

1.16260 -0.00166 -0.14%

27.0

Pips

Profit

1.07400

1.09368

Exit Price

1.09098

Entry Price

1.12000

The EUR/USD currency pair continues to show resilience near the 1.0900 mark, trading at 1.0920 in the European trading hours on Wednesday, as the US Dollar remains under pressure due to mounting concerns over the economic outlook of the United States. These concerns are primarily driven by the policies of President Donald Trump, which have generated fears of a potential recession, and the ongoing global geopolitical tensions that have kept the greenback on the backfoot.

The US Dollar Index (DXY), which tracks the value of the greenback against a basket of six major currencies, has found temporary support near 103.35, an over four-month low. However, the US Dollar’s broader weakness is evident, as investor sentiment remains negative due to the increasing risks associated with the US economic trajectory under the current administration.

In particular, the potential inflationary impact of President Trump’s "America First" policies—primarily focused on tariffs and protectionist measures—has raised alarm bells. Market participants are increasingly concerned that these policies could exacerbate inflationary pressures, thereby eroding the purchasing power of US households, which are already grappling with the challenges posed by high inflation.

A key driver of the US Dollar's weakness in recent days has been growing fears of an economic recession, particularly after remarks by US Commerce Secretary Howard Lutnick. In a CBS interview on Tuesday, Lutnick defended President Trump’s policies, describing them as “the most important thing America has ever had” and insisting that they were worth the risk, even if they led to a recession. Lutnick’s comments underscore the deep divisions within the US administration over the potential long-term economic consequences of Trump’s approach.

The growing concern about a US recession is compounded by market expectations ahead of the release of February’s US Consumer Price Index (CPI) data. Analysts are forecasting that headline inflation, which measures the overall price changes for goods and services, will decelerate slightly to 2.9% year-on-year, down from 3% in January. In contrast, the core CPI, which excludes the more volatile components of food and energy, is expected to rise by 3.2%, a slight decrease from the previous 3.3%.

These inflation readings will be crucial for the Federal Reserve’s monetary policy outlook, as they will provide the market with further insight into whether the central bank is likely to pause or continue its tightening cycle. Given the prevailing uncertainty, many investors are closely monitoring the CPI data, as it will play a pivotal role in shaping expectations for future rate decisions by the Federal Reserve.

On the European front, the Euro (EUR) has found support from a combination of domestic economic optimism and international developments, including a breakthrough in the German defense spending discussions and renewed hopes for a ceasefire in the Ukraine conflict.

In recent days, the Euro has benefited from an agreement within Germany’s ruling coalition to pursue an ambitious defense spending plan, coupled with a potential shift in the country’s fiscal policy. The Green Party, led by Franziska Brantner, has agreed to negotiate with key figures from the opposition, including likely future Chancellor Friedrich Merz and Social Democratic Party (SDP) co-leader Lars Klingbeil. These negotiations aim to address Germany’s defense spending and potentially allow for a relaxation of the country’s stringent fiscal rules, known as the "debt brake."

A successful negotiation on this front could lead to a loosening of fiscal constraints in Germany, providing a potential economic stimulus to the broader Eurozone. Such a shift could have profound implications for the European Central Bank (ECB), which may need to reassess its monetary policy stance. ECB officials have consistently signaled a more dovish outlook, with interest rates expected to remain low or even decline further. However, any significant change in Germany’s fiscal approach could push the ECB to consider altering its course.

Adding to the Euro's appeal is the unexpected optimism surrounding the situation in Ukraine. On Tuesday, Ukraine agreed to a 30-day ceasefire during a meeting with US officials in Saudi Arabia. This development raised hopes of a de-escalation in the ongoing conflict, which has been a significant source of uncertainty for global markets. US Secretary of State Marco Rubio indicated that the US would now present the offer to Russian officials, with the potential for the peace process to reduce the geopolitical risks that have been weighing on European currencies.

While the Euro has gained from positive domestic developments and international peace talks, it still faces headwinds from the ongoing trade tensions between the US and its global partners. President Trump’s protectionist tariff policies continue to overshadow global economic relations, with the US using trade barriers as a tool to negotiate more favorable deals.

A notable example of this came on Tuesday, when Ontario Premier Doug Ford of Canada rolled back a 25% surcharge on electricity exports to the US. This move came after President Trump threatened to increase tariffs on Canadian steel and aluminum imports by as much as 50%. Such tariff escalations not only strain the economic relationship between the US and its neighbors but also create additional uncertainty for global markets.

Technical Analysis

From a technical perspective, EUR/USD remains firm near the 1.0900 level, having strengthened significantly following a decisive breakout above the December 6 high of 1.0630. The pair is currently trading within the range established during Tuesday’s session, reflecting continued stability despite the fluctuations in global sentiment.

The long-term outlook for EUR/USD remains bullish, with the pair holding above the 200-day Exponential Moving Average (EMA) at approximately 1.0650, a key support level. The recent bullish momentum is also supported by positive readings on the stochastic oscillator, which indicates strengthening upward momentum. Additionally, the 50-day EMA continues to provide upward support, further reinforcing the bullish case for the currency pair in the near term.

TRADE RECOMMENDATION

BUY EURUSD

ENTRY PRICE: 1.0910

STOP LOSS: 1.0740

TAKE PROFIT: 1.1200

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