During the past week, the EUR/USD currency pair experienced notable volatility. After two consecutive days of decline, the pair managed to stabilize above the 1.1250 level. However, it remains on track to post small weekly losses. In the following, we will examine the technical and fundamental factors behind this price behavior.
Fundamental Factors Influencing EUR/USD
The U.S. dollar strengthened in the second half of the week, primarily due to the Federal Reserve’s hawkish tone, which applied downward pressure on the euro. Additionally, the announcement of a UK-U.S. trade deal further supported the dollar, pushing EUR/USD lower during Thursday’s American trading session.
On Friday morning, U.S. stock index futures traded mixed, reflecting a cautious market stance. Although Friday’s economic calendar lacks any high-impact data, several Fed officials are scheduled to speak.
If Fed policymakers reiterate their cautious stance toward rate cuts, the dollar could hold its ground, making it harder for EUR/USD to gain momentum heading into the weekend. According to the CME FedWatch Tool, markets currently assign only a 17% probability to a 25-basis-point rate cut in June, suggesting that the dollar still has room for upside—especially if investors believe the Fed will delay any policy adjustments until July.
On the other hand, comments from European Central Bank (ECB) officials about the continuation of rate cuts have limited the euro’s potential for gains. On Friday, ECB policymaker Olli Rehn stated that the Eurozone’s growth outlook is weakening and disinflation continues. Similarly, Governing Council member Gediminas Šimkus pointed to ongoing downward pressure on inflation and emphasized the necessity of a rate cut in June.
Technical Outlook – EUR/USD
Following a two-day decline, EUR/USD rebounded and stabilized above the 1.1250 level. This recovery was largely due to a pause in USD buying and investor caution ahead of U.S.-China trade talks scheduled for Saturday.
The Relative Strength Index (RSI) on the 4-hour chart remains near 40, indicating that this bounce is more likely a technical correction than the beginning of a bullish reversal.
From a support perspective, 1.1175 (the 50% Fibonacci retracement of the latest uptrend) is the first key support level, followed by 1.1080 (61.8% Fibonacci retracement). On the upside, resistances are located at 1.1270 (38.2% Fibonacci), 1.1350 (100-period simple moving average), and 1.1380 (23.6% Fibonacci retracement).
Conclusion
Although EUR/USD has technically rebounded above 1.1250, fundamental headwinds remain—such as the Fed’s hawkish tone and the Eurozone’s weak economic outlook. Investors are closely monitoring economic developments and central bank commentary to gain a clearer picture of EUR/USD’s likely direction in the coming weeks.
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