The Euro (EUR) attempted to extend its gains for a fourth consecutive day on Thursday but faced a sharp rejection from the 1.0850 level, halting EUR/USD’s three-day winning streak. Despite this, EUR/USD has enjoyed a strong week, rising 4.6% from Monday’s opening bid.
Market sentiment shifted significantly after expectations of interest rate cuts eased. Following the European Central Bank’s (ECB) 25 basis point rate reduction on Thursday, markets now expect only one more rate cut in 2025. This tightening interest rate differential between the Euro and the US Dollar contributed to EUR/USD’s sharp rise this week.
While investors continue to seek rate cuts to ease financing and borrowing costs, persistent inflation in both the EU and the US—driven by rising inflation metrics—has limited the ability of central banks to implement such measures effectively.
Additionally, US President Donald Trump once again adjusted his position on tariffs, temporarily suspending tariffs on goods covered under the US-Mexico-Canada Agreement (USMCA). Despite the administration’s reversal on previous tariff threats, markets have struggled to regain risk appetite, which has capped any upward momentum.
EUR/USD Outlook Ahead of Key US Jobs Report
The US Nonfarm Payrolls (NFP) report, due on Friday, will be a crucial focus for markets as investors seek insight into the health of the US labor market. While the US economy remains robust, concerns are growing over signs of weakness in the labor market. Moreover, inflationary pressures, partly driven by tariffs, are dampening growth expectations.
EUR/USD Technical Analysis
The recent rejection from the 1.0850 level has halted EUR/USD’s near-term bullish momentum. This follows a week in which EUR/USD broke above the 200-day Exponential Moving Average (EMA) at 1.0650, signaling a return to the bullish side of the key moving average for the first time since November.
However, technical indicators remain in overbought territory, signaling caution for further bullish positioning. While the chart does not provide significant technical reasons for immediate gains, traders may look for potential rejection points at previous support/resistance levels, particularly from mid-October 2024.
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