EUR/USD price rises toward $1.12 as dollar softens on weak economic data
EUR/USD rises near 1.1200 as the U.S. dollar softens, driven by weak inflation and retail sales data
EUR/USD ticked up on Friday, trading near $1.12 as the U.S. dollar softened following a mix of weaker-than-expected U.S. economic data and optimism around the U.S.-China trade truce. The pair is experiencing upward momentum after the U.S. dollar (USD) faced selling pressure, tracking a sharp decline in U.S. bond yields following the release of soft Producer Price Index (PPI) and Retail Sales data.
While the U.S. dollar index (DXY) edged down to 100.70, 10-year Treasury yields dropped by more than 3% to near 4.40% from their monthly high of 4.55%.
EUR/USD price dynamics (May 2025) Source: TradingView.
U.S.-China trade truce boosts EUR/USD
The recent 90-day truce between the U.S. and China, which includes a reduction in tariffs, initially sparked optimism that the global trade dispute might de-escalate. This truce has lifted broader market sentiment, although the initial enthusiasm has since waned. Despite a positive impact on global growth prospects, concerns about inflation and slower economic growth in the U.S. have caused a rebound in the euro.
The soft U.S. data also played a key role in the dollar's weakness. The U.S. Producer Price Index (PPI) showed a decline in inflation for April, while Retail Sales only increased by 0.1%, significantly lower than March’s robust 1.5%. In line with these weak readings, U.S. Federal Reserve officials have expressed concerns about the direction of inflation, with some suggesting that further rate cuts may be needed.
ECB outlook and inflation concerns keep the euro supported
On the European front, the European Central Bank (ECB) remains in a dovish stance. ECB Governing Council member Martins Kazaks suggested that rate cuts may continue into the summer, depending on inflation developments, particularly the baseline forecast of returning to 2% inflation. The Eurozone’s first-quarter GDP growth was revised downward to 0.3%, and inflation remained relatively high at 2.2%. This raises concerns about a potential slowdown in the region, although the ECB is committed to further easing if needed.
Technical outlook for EUR/USD: 1.1200 level in focus
EUR/USD is currently consolidating near the 1.1200 mark, with the 20-day Exponential Moving Average (EMA) acting as a key barrier at 1.1210. The pair’s immediate resistance lies at the April 28 high of 1.1425, while support remains at the March 18 low of 1.0955, marking a critical level for the bulls to defend.
As the euro continues to strengthen, traders will closely monitor U.S. economic data and upcoming speeches by Federal Reserve officials for further cues on interest rate expectations. The next key triggers for EUR/USD include the U.S. Consumer Price Index (CPI) and further developments in U.S.-China trade negotiations. For now, the euro is likely to maintain its bullish momentum as the U.S. dollar faces continued pressure from weak economic data and global trade tensions.
As previously discussed, the recent U.S.-China trade developments, along with soft U.S. economic indicators, have supported the euro, allowing EUR/USD to rise above critical support zones. However, traders will need to watch for further consolidation or potential resistance near 1.1200
