EUR/USD price fails to sustain rally amid U.S. trade uncertainty and dovish ECB
EUR/USD retreats from six-week high as tariff risks and ECB outlook weigh.
The EUR/USD currency pair, which recently climbed to a six-week high of 1.0533 early this week, is now under pressure as fundamental and technical factors cap its upside potential.
A mix of tariff risks, dovish expectations from central banks, and technical resistance levels has reversed the pair’s gains, leaving traders questioning the euro's ability to regain its footing.
On Monday, EUR/USD reached a six-week high of 1.0533, where it encountered the Fibonacci 0.786 resistance level. This critical barrier proved insurmountable, as the pair declined shortly after. By Tuesday, the euro extended losses, shedding 0.7% during a sharp drop in the Asian session. As of the late European session, the pair is trading at 1.0434, below the Fibonacci golden ratio near 1.0460, which now serves as a significant pivot zone.
EUR/USD price dynamics (October 2024-January 2025). Source: TradingView.
Beyond technical hurdles, fundamental developments are limiting EUR/USD’s upside potential. Resurgent tariff risks have resurfaced following Colombia’s acceptance of U.S. terms, as the uncertainty surrounding U.S. trade policies continues to impact risk sentiment.
EUR/USD price outlook risks deeper drop below Fibonacci 0.5 level
Additionally, the euro lacks a clear bullish domestic driver. The European Central Bank (ECB) is expected to maintain a dovish stance in its upcoming meeting, reducing the euro’s appeal relative to the U.S. dollar. While a widely anticipated 25 basis point rate cut by the Federal Reserve may spark temporary USD weakness, it is unlikely to materially lift the euro unless accompanied by broader positioning adjustments in favor of riskier assets.
Technically, the Relative Strength Index (RSI) on the 4-hour chart has shifted to neutral territory, suggesting a pause in directional momentum. EUR/USD’s ability to regain traction depends on its ability to reclaim and hold above the 1.0460 resistance level. However, without fresh catalysts or a shift in sentiment, further downside toward the Fibonacci 0.5 level remains a possibility.
A resolution between the U.S. and Colombia weakened the US Dollar, driving EUR/USD to a six-week high. Technical support and a declining U.S. dollar Index led to a 0.7% surge in EUR/USD.
