- EUR/USD has seen a recent rally driven by market reactions to the incoming Trump administration.
- A divergence exists between technical analysis, suggesting further upside potential, and fundamental factors, pointing towards potential weakness due to policy divergence between the ECB and FED.
- Key support levels for EUR/USD are 1.0425, 1.0350, and 1.0293, while resistance levels are 1.0500, 1.0600, and 1.0700.
Most Read: Oil Prices Slide – Brent Crude Taps 200-day MA. Can it Snap 4-day Losing Streak?
EUR/USD Fundamental Backdrop
EUR/USD has been on an offensive since Monday but does appear to be running out of steam. There are both technical and fundamental factors currently to consider and this makes EUR/USD an even more intriguing prospect to analyze.
The obvious factor behind the moves this week has been the incoming US administration under Donald Trump as markets continue to grapple with the prospect of tariffs and its impact on the US Dollar. Just yesterday President Trump vowed duties on European imports without giving much detail adding to market uncertainty.
However, there is also a growing belief that policy divergence may be even more severe under a Trump Presidency especially if the tariff threat becomes a reality. ECB policymaker Villeroy has attempted to downplay this by saying that a decoupling between the ECB and FED on rate is not an issue.
However, if this gap widens EUR/USD risks dropping below parity as sluggish growth and a host of problems continue to plague Europe’s largest economies. According to LSEG data, markets are currently pricing in around 95 bps of cuts from the ECB through December 2025, while pricing in around 39 bps for the Federal Reserve over the same period.
If this gap continues to widen, the Euro may lose significant ground to the Greenback which could affect every consumer and ratchet up pressure on the ECB.
Technical Vs Fundamental Outlook – Growing Divergence
There has always been a school of thought that the Technical and Fundamental pictures when looking at any instrument kind of complement each other. Off late however, EUR/USD has seen this case put to the test as the movement of EUR/USD this week is at odds with the overarching fundamentals discussed above.
The move unfolding in EUR/USD has been touted a s potential deeper retracement following the protracted selloff that began at the back-end of September. However, looking at the technicals, both price action and chart patterns are hinting at the start of a big move to the upside.
Technical Analysis on EUR/USD
EUR/USD Daily Chart, January 22, 2025
Source: TradingView.com (click to enlarge)
Looking at EUR/USD daily chart above and as you can see EUR/USD appears to have bottomed out on January 13 before beginning its impressive move higher.
The move was sparked by President Trump on Monday where EUR/USD rose around 120 pips or 1.45%. What intrigues most about the pair is where price currently rests. Price is testing the long-term descending trendline with a daily candle close above likely to encourage bulls and thus stimulate more buying pressure.
EUR/USD Four-Hour (H4) Chart, January 22, 2025
Source: TradingView.com (click to enlarge)
Dropping down to a four-hour chart, we have already had a candle close above the trendline, a retest and continuation with a fresh high on the H4 chart printed this morning.
All of this bodes well for further upside despite the fundamental picture as mentioned.
If EUR/USD is able to sustain its bullish advance, immediate resistance rests at the 1.0500 handle before the 1.0600 and 1.0700 levels come into focus.
A rejection here, or failure to kick on could leave EUR/USD vulnerable to retest key support at 1.0425 before the 1.0350 and 1.0293 handles come into focus.
Support
- 1.0425
- 1.0350
- 1.0293
Resistance
- 1.0500
- 1.0600
- 1.0700
Follow Zain on Twitter/X for Additional Market News and Insights @zvawda
Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.
Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
Latest posts by Zain Vawda (see all)
- Markets Weekly Outlook – Inflation Fears Rise with Tariffs Ahead of US CPI Release - 7 February 2025
- US Dollar Index (DXY) and the NFP Jobs Report: What to Expect - 6 February 2025
- GBP/USD Analysis: Bank of England Decision Looms – What to Expect? - 6 February 2025