EUR/USD Surges Toward 1.1400 Amid Dollar Weakness, Trade Tensions, and Stagflation Fears

Summary:

EUR/USD soars toward 1.1400 as the US Dollar slides under the weight of stagflation fears and deepening US-China trade tensions.

BUY EURUSD

Close Time

CLOSED

1.14004

Entry Price

1.17000

1.12200

1.13555 -0.00026 -0.02%

159.1

Pips

Profit

1.12200

1.15595

Exit Price

1.14004

Entry Price

1.17000

The euro is on a bullish tear. On Monday, the EUR/USD pair climbed sharply toward the 1.1400 mark during the European session, extending its post-Friday rally and inching closer to the three-year high of 1.1474. The sudden surge in euro demand comes as the US Dollar faces an intense sell-off, pressured by mounting stagflation concerns, dismal consumer sentiment, and renewed tensions between the United States and China.

At the heart of the dollar's decline lies a cocktail of economic pessimism and geopolitical unease. On Friday, the University of Michigan’s preliminary Consumer Sentiment Index for April shocked markets, plunging to 50.8—the lowest reading since June 2022. This sharp drop in consumer confidence is not occurring in a vacuum. It coincides with a sudden uptick in inflation expectations, with the one-year forward inflation outlook accelerating from 5% in March to a staggering 6.7% in April.

This dual dynamic—plummeting sentiment and soaring inflation expectations—has reignited fears of stagflation in the United States, a dreaded economic scenario marked by stagnant growth, persistent inflation, and weakening employment. The Federal Reserve, which has fought tooth and nail over the past two years to curb inflation, now faces a more complicated outlook. As households grow increasingly pessimistic about the economy and anticipate higher prices, the central bank’s credibility in managing long-term price stability is being tested.

St. Louis Fed President Alberto Musalem underscored this concern on Friday, warning that if public expectations begin to bake in long-term inflation, it would become significantly harder for the Fed to restore economic balance. “If the public begins to expect inflation will remain high over the long term, the job of restoring price stability and maximum employment would be much more difficult,” he noted.

As if domestic economic troubles weren’t enough, geopolitical risks have also returned to the foreground. The US-China trade war—which had been relatively dormant—has erupted again. Last week, President Donald Trump hiked tariffs on a broad range of Chinese imports to 145%, a move that triggered immediate retaliation from Beijing. China responded on Friday by slapping counter-tariffs of up to 125% on US goods, effective the following day.

This re-escalation of trade hostilities between the world’s two largest economies has reignited fears of supply chain disruptions and investment paralysis. Businesses are likely to hold off on capital expenditures and expansion plans amid this renewed uncertainty, posing yet another headwind to US economic growth.

Investors are already pricing in a potential slowdown. The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, extended its downward slide below the critical 99.00 level, underlining the market’s waning confidence in the USD.

Despite the market’s risk-off tone, the euro has managed to rally strongly, benefiting from both USD weakness and growing confidence in the European Central Bank’s (ECB) dovish pivot. The ECB is widely expected to cut interest rates during its upcoming policy meeting on Thursday, with investors betting that the bank will be among the first major central banks to pivot away from the ultra-restrictive stance it held during the height of the inflation crisis.

Ordinarily, a rate cut might weaken a currency. However, in this case, expectations of the ECB’s forward-looking policy shift—paired with severe weakness in the dollar—have emboldened euro bulls. Market participants are interpreting the ECB’s expected move as a sign of economic normalization rather than desperation, especially as inflation in the eurozone has already started to ease.

Technical Analysis

From a technical standpoint, EUR/USD continues to show signs of strong upward momentum. After successfully digesting overbought conditions, the pair has resumed its ascent, with bullish signals flashing across the Relative Strength Index (RSI). The rally appears to be supported by a well-established short-term uptrend, giving the euro room to target the next key resistance at 1.1470—the high last seen over three years ago.

A clean break above 1.1470 could open the door toward the psychological level of 1.1700, a major hurdle that may prompt some profit-taking. However, if risk-off flows continue and dollar pressure persists, euro bulls could eventually push beyond this mark. On the downside, strong support remains in the 1.1200 region, which previously acted as a ceiling in August and September.

TRADE RECOMMENDATION

BUY EURUSD

ENTRY PRICE: 1.1400

STOP LOSS: 1.1220

TAKE PROFIT: 1.1700

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EUR/USD Surges Toward 1.1400 Amid Dollar Weakness, Trade Tensions, and Stagflation Fears

Risk Disclosure