EUR/USD Eyes Breakout as Fed & ECB Diverge on Rates, 1.1424 in Sight?
EUR/USD up to $1.1317 in early Tuesday trading as US Dollar pulls back and Germany’s political stability improves. With Friedrich..
Quick overview
- EUR/USD rises to $1.1317 as the US Dollar weakens and Germany's political stability improves with Friedrich Merz becoming Chancellor.
- The ECB is expected to cut the Deposit Facility Rate by 25bps to 2%, its eighth cut this year, due to concerns over weak inflation.
- The Dollar Index remains below 100 as markets await the Fed's decision on interest rates and guidance on future policy.
- EUR/USD is in a symmetrical triangle pattern, indicating a potential breakout in the coming sessions.
EUR/USD up to $1.1317 in early Tuesday trading as US Dollar pulls back and Germany’s political stability improves. With Friedrich Merz set to be sworn in as new Chancellor, investors expect smoother execution of fiscal spending and defence investments already approved by Bundestag in March.
But Euro’s upside is limited as traders prepare for ECB meeting. ECB is expected to cut Deposit Facility Rate by 25bps to 2%, its 8th cut in a year. Central bankers are still concerned about weak inflation dynamics and external risks – especially from US trade policies.
Key points:
ECB rate cut to 2% likely in June
Eurozone inflation to be near 2% by year end
Political clarity in Germany supports market sentiment
Dollar Steadies Ahead of Fed Decision
Dollar Index (DXY) is hovering just below 100 as markets wait for Fed decision on Wednesday. Fed is already priced to hold rates steady at 4.25-4.50% in May. The real focus is on forward guidance and how Fed interprets Trump’s recent policy moves.
Fed has a tough balancing act: hold rates steady while waiting for clarity on fiscal policy or risk acting too soon. Trump’s tariff proposals – especially 100% tariff on foreign made films and new duties on pharma – have added more uncertainty to already mixed US economic outlook.
What to watch:
Fed’s tone on future rate moves
Impact of new US tariffs on inflation
Treasury’s 3% growth forecast for next year
Technical Outlook: EUR/USD Breakout Looms
EUR/USD is coiling in a symmetrical triangle, currently between $1.1378 and $1.1284. 50-period EMA is flat at $1.1320, while MACD is subdued. This narrowing range often precedes a breakout, so next few sessions are crucial.
Trade ideas:
Buy above $1.1380, target $1.1424, stop at $1.1300
Sell below $1.1280, target $1.1252, stop at $1.1340Be cautious.
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