EUR/USD price retraces from double top formation after largest single-day gain

EUR/USD currency pair has entered a period of heightened volatility, with recent movements sparking discussions about the future direction of the currency pair.
After surging by 1.5% on Monday, January 20th, the euro quickly gave back gains in Tuesday's Asian session, declining by 0.7% to 1.0350, largely due to broader market sentiment and developments surrounding both US and Eurozone economic expectations.
The surge on Monday marked the largest single-day gain for EUR/USD since November 2023. It was primarily driven by market optimism surrounding the US political landscape following the presidential inauguration of Donald Trump. The rally followed news of a lack of immediate tariff imposition, boosting risk sentiment globally and bolstered the euro. However, the recent reversal that followed highlights the ongoing bearish trend that has dominated EUR/USD since Q4 2024. This retreat came after the formation of a double top pattern at 1.0430, a technical signal that suggests the euro may struggle to break through these resistance levels in the short term.
EUR/USD price dynamics (November 2024-January 2025). Source: TradingView.
EUR/USD price outlook as markets price in ECB rate cuts and economic concerns
For now, EUR/USD finds itself supported by the 100 EMA at 1.0330 on the 4-hour chart, providing short-term protection from further downside while a break above the double top would shift the market's structure to a bullish bias, confirming a potential trend reversal.
The recent price action is also influenced by dovish expectations surrounding the European Central Bank (ECB). Markets are currently pricing in a 25-basis point rate cut at each of the next four ECB meetings, driven by concerns over the Eurozone's economic outlook and an inflation trajectory that remains well below the ECB’s 2% target.
The anticipation of these rate cuts has weighed heavily on the euro, pushing it further from recent highs. Traders will need to closely watch the price action around key technical levels and the upcoming ECB meetings for further clues on the direction of the euro in the coming weeks.
EUR/USD gained 0.5% in Monday's session, rising from 1.0267 to 1.031. However, it struggled below the key resistance level of 1.0331, which has held firm for the past three trading days